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Internet a major economic force

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A new study has revealed exactly how crucial the Internet economy is to South Africa’s future, as an enabling tool for business communications, collaboration and transactions.

The Internet Economic Impact Study, conducted by World Wide Worx for Google South Africa, has – for the first time – quantified the contribution made by the Internet to the overall economy has never been quantified.

The study goes much further than simply highlighting the impact this has on the economy, however, providing a series of policy recommendations that it is hoped will assist its continued growth and development. Such recommendations are important when one considers that already, the Internet economy contributes some 2% to gross domestic product (GDP).

According to Arthur Goldstuck, MD of World Wide Worx, the study shows that the total spent by consumers, small and medium enterprises (SMEs), and government on products and services via the Internet in 2011, as well as on Internet access and infrastructure, is R59-billion.

“What is interesting here is that the largest contributor to this total is not, as most people would assume, the investment by service providers in infrastructure. While the mobile networks and fibre providers have certainly spent their fair share on infrastructure – a total of R13.5-billion – this pales beside the R29.2-billion spent on Internet presence and access,” says Goldstuck.

“The study further indicates that e-commerce is growing at a rate of around 30% a year, and is showing no signs of slowing down. In fact, taking into account the fact that a number of major consumer brands and chains have not yet devised comprehensive online retail strategies, the scope for future growth is even greater.”

He points out that certain sectors, notably the airline industry, have already fully embraced e-commerce. Airlines are already comfortable with e-ticketing and are rapidly migrating ticket sales online. This is demonstrated by 2011 sales of nearly R9-billion.

It is a surprise, continues Goldstuck, to learn that government spending on Internet infrastructure and access is comparatively low, coming in at a little more than R1-billion. It must be said, however, that general ICT spending runs into several billion Rand.

Luke Mckend, Google SA Country Manager, adds: “No business, industry or government can ignore the scale of the Internet and the impact it is having.  It presents a host of opportunities.  Small and medium enterprises (SMEs) have been uneven in their uptake, but they are moving online in increasing numbers and are committed to doing so.”

This is clearly demonstrated by primary research conducted by World Wide Worx in the form of its SME Survey, the original representative survey of small and medium enterprises in South Africa. The 2012 edition has highlighted the importance of the Internet to the economic wellbeing of this sector in particular.

“The survey shows that around 410 000 SMEs in South Africa have a website, representing 63% of active, formal SMEs. The full impact of these websites on the economy is placed in perspective by the number of SMEs that would not have survived without one. Approximately 150 000 SMEs in SA would go out of business, were it not for their Web presence. Since SMEs account for some 7,8-million jobs, this means that as many as 1.56-million jobs would be in jeopardy were it not for the Internet,” suggests Goldstuck.

He adds that, while the impact of the Internet is already significant, it is expected that it will increase even further in the coming years. This will be fuelled by both the growing awareness of the importance of the Internet across business and government, and rapid growth in the number of Internet users.

“Thanks to the smartphone explosion currently taking place in South Africa, access levels and awareness are increasing all the time. In fact, it is the smartphone users who represent the future potential of Internet growth in South Africa. By next year around half of all cellular phones sold in SA will be of the smart variety. Since smartphone users eventually become Internet users, we can expect the Internet user base to grow at an accelerated pace.”

However, he cautions that according to the Digital Participation Curve, a model developed by his company, it can take up to five years before new Internet users gain the confidence and experience to become active participants in the Internet economy.

“Consequently, with the number of Internet users having begun accelerating in 2008, the number of experienced users will begin accelerating in 2013, and will continue to do so for the following five years. The result is that an Internet economy worth R59-billion in 2011 and making up 2% of the SA economy could grow to as much as 2.5% of the economy by 2016.

“To put this into perspective, the agricultural sector made up only 2.2% of GDP in the last quarter of 2011. Looked at it another way, it is likely that over the next five years, the Internet economy will begin approaching the size of the construction sector – an estimated R120-billion in 2011, suggesting this is potentially one of the new building blocks of the South African economy,” concludes Goldstuck.