After more than a year of lockdowns, decreased market demand, and economic downturn, lockdown restrictions have moved to level one in South Africa and the vaccine rollout is underway.
By Steve Briggs, chief commercial officer at Seacom
The tragic loss of lives and financial destitution caused by the virus are beyond anything we could have ever imagined, but there now appears to be a path to recovery.
Although there is still a long way to go, the economy seems to be returning to normal. Our GDP is projected to grow by 3,3% in 2021 and, while a full recovery will take time, South Africa has managed to pull itself back from a fiscal cliff and businesses are seeing signs of green shoots.
The start of an economic improvement will have many implications for businesses, their plans, and their future spend. Specifically, when it comes to IT spend, the pandemic disrupted tech and digital budgets, so how are businesses likely to respond to the prospect of improved economic conditions?
How the pandemic affected IT spending
At the start of 2020, many organisations put growth plans on hold, opting for the more cautious approach of maintaining existing systems and improving operational efficiencies, all the while preserving their cash reserves. The economic downturn and uncertainty put severe constraints on budgets, and led to lay-offs or business closures.
For businesses that managed to weather the storm, their focus shifted to prudent cost-cutting measures and extracting value from existing systems. For others, the pandemic resulted in accelerated digital transformation through remote work and cloud migration. Either way, existing IT budgets were rewritten, putting project plans and upgrades on hold and redirecting spend to more pressing business continuity requirements.
It has become clear that uncertainty is something businesses need to become better at dealing with. Although cautious optimism is certainly warranted, if COVID-19 has taught us anything, it’s that anything could happen, which may make some feel reluctant about making significant decisions on IT spending. But now that the economy is in an upturn, businesses should also consider the opportunity costs of continuing to delay investments in digital innovation.
The pandemic has wreaked economic and personal havoc, but global lockdowns have led to a massive boom in online activity. According to McKinsey, COVID-19 accelerated the ecommerce industry to reach 10 years’ worth of growth in just three months at the start of 2020. More consumers and businesses are doing their buying online, which is why the online user experience has become as important as well-targeted marketing initiatives.
Spending is on the rise
As this trend increases, and more customers look for products and services online, investment in reliable digital infrastructure has become a clear priority. Businesses that were holding back their IT budgets in a ‘wait and see approach’ are now happier to put those projects back in the pipeline. While Gartner predicted that IT spending would have declined by 8% in 2020 due to increased spending on business necessities, it now forecasts worldwide IT spending for 2021 to grow by 6,2% with “cloud computing, core business applications, security and customer experience at the forefront”. Tech stocks are also expected to soar 25% over the next year as economies reopening across the globe has spurred new growth, with tech giants leading the climb.
In South Africa, consumer spending figures also indicate that it’s a good time for businesses to be accelerating IT investment decisions. Consumer spending plunged by 60% in April last year, baselined to FNB debit and credit card spend, but then normalised by August to only 2,5% worse than the comparable month in 2019, as household incomes made a recovery. Not only has South Africa’s economic recovery been better than expected, but a recent study has also shown that half the jobs lost in hard lockdowns were recovered by October last year.
Time to innovate
Despite the economic and social devastation that COVID-19 has caused, it has also presented businesses with the opportunity to fast-track their digital transformation goals. As consumer spending and economic activity begin to recover, businesses that have delayed IT projects can no longer hesitate when it comes to investing in innovation. Tech hubs, start-ups, and data centres are cropping up across the African continent, fuelling a digital revolution that has much to offer for companies that are ready to take advantage of it.
With consumer and B2B behaviour shifting towards digital platforms and experiences, our goal should not be simply to repair business operations – but to reinvent them. And that starts with investing in projects that will allow us to embrace our digital future.