South Africa
South Africa, commonly referred to as the gateway to Africa, is becoming one of the most promising players in the IT sector today. According to a 2008 study from the research and advisory firm IDC, IT outsourcing in the region accounts to more than one-third of its IT services market.
South Africa offers services to the domestic markets of Eastern Europe, Mexico, and Canada because of its proximity and affinity to their geography and culture. It is also compatible with Europe's time zone. Recognizing the growing role of BPO in developing and improving economic growth, South Africa’s government launched the Accelerated and Shared Growth Initiative for South Africa (AsgiSA), In 2007, they launched an investment incentive worth R1.1 billion focusing on a broad-based marketing strategy, support programs such as investment grants and training subsidies, and a pricing framework for telecommunications to further attract outsourcing companies.
South Africa has exceptional skills in leadership, customer service, human resource, operations, and technical resource management. Its BPO sectors are highly involved in telecommunications, insurance, financial services, and other outsourced processes that involve Web design and development, sales services, human resources, data capture and conversion, benefits administration, and accounting. South Africa also has financial acumen in loan processing and collection, mortgages and insurance. Some of the largest global companies have already invested in these services, including: IBM, Siemens, Lufthansa, Fujitsu, Accenture, Kelly, Avis, and Virgin.
Country overview
South Africa, coined “Rainbow Nation” by Archbishop Desmond Tutu, has a diverse collection of cultures and languages, with eleven official dialects. English is the fifth most spoken language in the region. Its ethnically diverse population contains the most of Asians, Europeans, and other racially mixed communities in Africa.
South Africa's Cape of Good Hope, or Cape Town, was once a refreshment station for the Dutch East India Company. The region later became popular for prospectors in the diamond and gold trade, spurring economic growth and the migration of Europeans leading to European-South African enslavement and racial segregation under Dutch and British colonial rule. South Africa had its first democratic election in 1994 but the nation still endures lingering aspects of its apartheid era. Many attribute the apartheid system, in addition to the current government's policies, as the reasons for increasingly high unemployment rates.
South Africa is still considered a developing nation, with a disproportionate allocation of income and wealth among its population. It has a rich supply of natural resources with highly-developed transport, energy, communications, legal, and financial sectors. Its growth was strong from 2004 to 2008 due to its macroeconomic stability and a global commodities expansion. However, this began to slow down in the latter part of 2008 as the global financial crisis impacted commodity demand and prices. South Africa has a gross domestic product of USD $354 billion, or USD $528 billion when measured using the purchasing power parity (PPP). An increasingly major contributor of its GDP is attributed to information and communication technology (ICT) and its electronic sectors, particularly in the field of electronic banking services.
South Africa still faces very high levels of unemployment with levels approaching 25 percent. Many South Africans live on USD $1.25 or less a day. There are also economic problems that stem from the apartheid era, such as lack of economic empowerment among the disadvantaged groups, poverty, and a scarcity of public transportation. The economic policies are fiscally conservative, despite pressure from special interest groups pleas to focus spending on job growth and improve low-income areas.
Source: CIA Factbook, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Cost competitiveness
Employee compensation
Junior resources are an important part of an outsourcing operation, and their costs are vital in lowering a company’s costs. Software Engineers or Web Developers with one to four years experience, salaries command an average of 44 percent of U.S. wages. South Africa’s salary structure is very high when compared to the Philippines (10 percent), India (12 percent), China (23 percent), and Egypt (12 percent), with averaging USD $26,000. Skilled software engineers and developers offer even less savings, with salaries averaging USD %65,000, or 67 percent of their US counterparts.
IT Project Managers have higher rates, averaging 73 percent of U.S. resources compared to the Philippines (26 percent) and India (25 percent).
South Africa’s BPO industry puts an emphasis on call centers; employing about 80,000 people it is one of the fastest growing markets globally. BPO resources, particularly junior non-voice, are around 39 percent of U.S. resources. Skilled, non-voice resources have salaries averaging 56 percent, while operations managers command 76 percent of US wages.
Real estate
Office Occupancy Costs for the country's central business districts are around $17 USD/sf/yr. It ranks first among the countries with the lowest costs for office space, followed by Indonesia ($17.2), Thailand ($23.5), the Philippines ($23.6), and Chile ($31.7). Similarly, the country ranks first place even for its office costs in the suburbs, with annual costs per square foot around $15 USD. Indonesia and Thailand also remains in the top five.
Taxes
Corporate tax rates, one of the top three expenditures of any outsourcing operation is very high in the South Africa at 35 percent compared to Egypt (20 percent), Israel (25 percent), and Vietnam (25 percent). Indirect tax rates are 14 percent, giving South Africa an SMB effective tax rate of 31 percent.
Source: PayScale, SourcingLine, February 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: CB Richard Ellis, Colliers International, SourcingLine, March 2010
Source: Colliers International, SourcingLine, March 2010
Source: KPMG, October 2009
Source: KPMG, October 2009
Source: Doing Business (World Bank), 2010
Real Estate : Office occupancy costs are averages across Cape Town and Johannesburg.
Resources and skills
Outsourcing sector
The volume of IT services exports is a good measurement of the size and maturity of the IT outsourcing sector serving the global market. According to the International Monetary Fund (IMF), South Africa ranks among the bottom five, exporting around $203.2 million USD compared to India ($49 billion), China ($7 billion), Canada ($4 billion), and Russia ($1.7 billion). South Africa also ranks nineteenth for exports of miscellaneous business services, including research and development, management consulting, accounting, and legal services.
Education and skills
Despite above-average spending on education, South Africa’s adult literacy rate is just 88 percent, ranking low with Egypt, India, Ghana, and Pakistan. South Africa’s universities graduate 125,000 students annually, 18 percent of which obtain science or technology degrees.
Education in South Africa is a constant battle between the present education and the country's 40 years of apartheid learning. Apartheid education usually allowed white South African children to gain free schooling, while the blacks had only Bantu education. This is especially true for rural provinces like KwaZulu-Natal and Eastern Cape, while more affluent provinces, like Western Cape and Gauteng received better quality education.
Language
South Africa has a strong English-speaking population. It currently ranks number three among the countries with the most number of natives who can speak the language with 34 percent.
Technological readiness
A country's internet access is a good indicator of a population's technological readiness. The clear leaders are Canada and the U.S., averaging around 74 to 75 percent of users per 100 inhabitants who have access to the internet. South Africa is placed at the bottom, joining India, the Philippines, and Ghana with less than one percent of the population connected.
Source: CIA Factbook, 2009
Source: IMF, 2008
Source: IMF, 2008
Source: UNESCO, 2009
Source: UNESCO, 2009
Source: OECD PISA, 2006
Source: UNESCO, 2009
Source: UNESCO, NASSCOM, SourcingLine, 2009
Source: UNESCO, 2009
Source: International Telecommunications Union, 2009
Source: International Telecommunications Union, 2009
Outsourcing Sector : South Africa does not report at the Misc. Business Services level. Number includes merchant services (i.e. Other Business Services).
Business and economic environment
Economic competitiveness and stability
South Africa’s economic competitiveness is high, placing ninth among the top ten countries with the most economically competitive and stable platform. Its Global Competitive Index (GCI) score is 4.3, similar to India, Brazil, and Russia. Its macroeconomic stability is above average, sharing the same GCI score of 5.0 is similar to Singapore, Malaysia, and the Czech Republic.
Infrastructure
The quality of roads in South Africa is very good, ranking in sixth among nations with the best road scores in the Global Competitiveness Index published by the World Economic Forum. South Africa has better roads than most of the dominant players in the outsourcing market today, including China, India, and the Philippines. Its electric supply is in the middle range, averaging a 3.8 index score together with Indonesia and Argentina.
Labor market efficiency
South Africa has been working to transform its labor market since 1994, focusing on eliminating apartheid-era labor inequalities and improving the general working conditions of its employees. Signs of progress are generally minimal, as the nation received unsatisfactory index scores in a survey co-published by the World Bank.
Regulation
South Africa has one of the easiest corporate environments to work with, ranking sixth among the leading countries with the most conducive business environment. The top three countries include the U.S., Canada, and Thailand. It also has an above average ranking in the number of days it takes to register a start-up company.
Corruption
Corruption can be an exceptional burden on a company's operational costs, and can be felt indirectly when working with third party outsourcing firms. An example of this is when businesses pay bribes to speed up the processing of a business license. According to Transparency International, South Africa is rated above average in its corruption perception index. This is not always the case, as the complex political economy has given birth to numerous corruption practices particularly fraud, nepotism, bribery, and systemic corruption. The government initiated a national anti-corruption campaign in 1999 which was since been followed by other programs.
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: International Telecommunications Union, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Transparency International, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: The Global Competitiveness Report, 2009
Source: BSE-IDC Global Software Piracy Study, 2009