Information Technology in South Africa

The biggest users of computers and software in South Africa are:¹

* large corporations, such as the South African Iron & Steel Corporation (ISCOR), financial institutions, insurance companies, base metal processing , as well as oil and chemical companies;

* quasi-government organizations such as universities, Transnet (the state owned transport services corporation) including South African Airways, Telkom (the telecommunications utility) and the South African Broadcasting Corporation (SABC). The looming privatization and decentralizing of many para-statal organizations is likely to have a significant stimulatory effect on the software market demand;

* mid-sized and small companies which are increasing as a result of many major corporates unbundling to foster entrepreneurship and free enterprise;

* small office home office (SoHo) market which is increasing rapidly as many more smaller businesses emerge to provide contracted out services to the larger organizations;

* individuals and families who are fast beginning to recognize the need to become computer literate from an ever younger age.

The large corporations are the biggest users of computers and software, followed by quasi-government organizations and midsize companies. The manufacturing sector is the largest single consumer of packaged application solutions, accounting for some 24% of total sales however mid-range platforms dominate this sector.²

The most important criteria amongst all companies purchasing PC software is compatibility with existing software. For medium to small sized firms, warranty, service and after-sales support is at par with compatibility while in larger companies, adaptability of the software to internal company standards is also an important factor. Although corporate customers are investing substantial amounts into IT, about 30% are not satisfied and believe that the price/value relationship is not very beneficial.

The SoHo market is an emerging market, but opinion within the industry is not unified about the growth potential within this segment. The main point of contention is pricing, which is significantly higher compared to world markets. This end-user segment is price sensitive, and some experts believe that a significant boom in this segment will only materialize once hardware and software prices are lowered. Currently, an average home PC costs 200% of the average monthly salary,  compared to 50% in the US, making the PC more of luxury than a necessity for the average potential buyer in South Africa. The individual and family buyers segment is not expected to grow significantly until discretionary income and computer literacy increases amongst the lower income population, which is being given a high priority by the Government of National Unity especially through distance learning techniques. All the major software application types are being used by the IT end-users in the South African market.

94% of end-users are using word processors;

93% of end-users are using spreadsheets;

45% of end-users are using business graphics;

41% of end-users are using databases;

33% of end-users are using accounts software;

27% of end-users are using E-Mail;

19% of end-users are using communications software;

15% of end-users are using marketing presentation software;

14% of end-users are using financial analysis software;

12% of end-users are using data collection software;

10% of end-users are using personal information management and statistical analysis software;

8% of end-users are using project management software;

7% of end-users are using utilities and desktop publishing;

5% of end-users are using programming and software development software, sales force automation software and integrated software;

2% of end-users are using emulation software.³

Computer education and training is widely available in South Africa, and the demand for training is indicative of the market demand for staff to be able to work in an automated office environment. Computers are being utilized increasingly in schools, and the trend is likely to continue as more and more of the previously disadvantaged communities have access to the education system. This will however take considerable time to materialize.

The computer software and hardware market in South Africa is technologically on a par with other first world countries and there is very little lag between the release of new products internationally and their appearance on the South African market. The South African information technology (IT) market is the twentieth largest in the world, contributing 0.6% to world-wide IT revenues and it said to be one of the top ten emerging markets that are currently being targeted by major international computer companies. Numerous multinationals have entered or re-entered the South African market, since the market began opening up in 1992, with all the major international software companies now being represented in South African.

Trends in the computer software market in South Africa relate mainly to downsizing of business systems, predominantly in the corporate market, which has resulted in midrange package revenues growing at a compound annual growth rate of 39%. Software compatibility with previously purchased software is also an important issue in software buying behavior. Thirdly, multimedia applications, particularly those suited for business needs, are expected to become more popular. The base of installed personal computers (PC s) in South Africa is approximately 800,000 to 900,000, and indications are that 84% of the top 200 IT users are investing in client-server systems. There is fierce competition in the IT industry in South Africa, with price competitiveness, service reliability, and a high demand for after-sales and value-added service, contributing significantly to the competitive situation. Software piracy is almost double that experienced in the US and is estimated to be around 60% of the value of the market. There are no restrictions or quotas on software imports, but imported software is subject to certain tariffs. Most new entrants into the market find local representative companies to represent them, of which there are a few joint ventures in the industry.⁴