South Africa's largest companies – those with 1 000 users more – are the ones expecting to lower their IT expenditure this year, with smaller firms actually looking to increase spending. IT services is also expected to benefit from increased expenditure.
These are some of the findings from BMI-TechKnowledge's latest report, The South African Corporate IT End User Customer Survey 2009, which reveals new insight into the recent downturn in the economy's effect on the corporate IT market.
South Africa'ss economy shrank 1,8% in the fourth quarter of 2008; its first contraction in 10 years and it's sharpest since 1992, when it was last in a recession. In the full year 2008, growth in real GDP decelerated to 3,1% year-on-year, following annual growth figures of 5,1% for 2007, 5,4% for 2006, and 5% in 2005, which was the fastest pace of growth since 1984.
The SA Reserve Bank has observed that the current contraction is a reflection of deteriorating consumer and business confidence, declining global demand, and a relatively tight domestic monetary policy. In addition, South Africa has not been able to escape the negative consequences of the international financial turmoil, despite the fact that South African financial institutions have very little direct exposure to the troubled assets that were central to the deterioration of credit markets.
"This had 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" states Lesley-Ann Dos Santos, BMI-T's enterprise research business manager. "The survey revealed that the pinch has been most felt in large organisations, with 1 000 employees or more, whereas companies in the 200 to 499 employees bracket indicated that they expected an increase in IT expenditure in all categories in 2009."
IT services spending in 2009 is still expected to grow, and will remain at 37% of the total IT spend as in 2008. However, hardware spending is expected to decline slightly, in contrast to the single digit positive growth rate forecasted a year ago.
However, a more drastic effect may be yet to come. The risks to 2009's economic growth are increasing. Briefly, an outright recession is a strong likelihood, as the global contraction is translated into lowered demand, corporate disinvestment, employment retrenchment, and cutbacks and closures throughout industry sectors.
In the near term, spending on the infrastructure programme, as well as the soccer World Cup 2010 and all its attendant benefits are drivers of growth. Sporting events in 2009 are also predicted to add R2-billion to the economy, and boost South Africa's tourism image.
"So far, 23% of corporates have reported a financial benefit from the 2010 Soccer World Cup," adds states Clinton Jacobs, BMI-T's lead analyst for IT products and services. "However, the credit crunch and declining commodity prices will make it harder for both state-owned and private companies to finance new projects in the coming year, and some infrastructure investment may have to be postponed."
The energy crisis was a major cause of the sharp decline in growth in the first quarter of 2008; mines were forced to cut production and commerce and industry nationwide suffered loss of productivity. The suddenness of the critical shortage of power was one of the major problems, and both business and consumers were thrown into a state of near panic. "Seventy three percen of corporates surveyed said they were affected by the power outages and 18% were heavily or severely affected," states Dos Santos. "Eighty percent of the companies interviewed implemented a back-up power solution following the 2008 energy crisis."