South Africa’s credit rating downgrades – how is the ICT sector affected?

Mark Walker, Associate Vice President for Sub-Saharan Africa at International Data Corporation

 December 5, 2017/IDC

Irene von Buddenbrock

With South Africa’s economy under pressure due to recent credit rating downgrades and the subsequent fall of the Rand against the Dollar, organisations should brace themselves for tough conditions in 2018. According to Mark Walker, Associate Vice President for Sub-Saharan Africa at International Data Corporation, while many organisations have already been expecting the worst and have planned for the downgrade, pricing pressures are set to continue in the ICT sector, particularly when it comes to hardware.

“If you consider GDP growth rate expectations for 2018, South Africa is looking at a growth rate of between 0.7 and 1.5 percent. So, many organisations are pricing this weak economy into their discussions as it does mean that hardware and imported equipment will be more expensive. There are also murmurs around adding VAT to petrol and potential increases in taxes, so the technology sector could very well be an easy target from a tax point of view.”

He adds that we can expect that IT will become more expensive, particularly when it comes to hardware, which could result in interesting new market dynamics. “We should see an acceleration into cloud-based computing because of the increased hardware prices, as this allows companies to offset their CAPEX cost.”

Walker says should the ANC’s December Elective Conference have a nett negative perception, either in the way it is run or because of the outcomes, the market will weaken further resulting in even more expensive IT in 2018. “Again, we will see the CAPEX or hardware side becoming even more expensive. That said, it is going to increase disruption occurrence and onset. Cloud and other accelerator solutions that allow you to rather increase your OPEX load by buying services overseas, could have an intended effect in the marketplace.”  

Innovation could also be impacted by a weakened economy, which generally means a dip in investment. “We have already started seeing a trend emerge where you have individuals and organisations innovating locally, but then taking those innovative ideas and solutions overseas because they are not able to unlock investment in the local market. They are simply too far away from Silicon Valley, Cambridge or any other areas typically associated with investment finance, venture capital and so on,” he says. “Also, if you look at GDP growth, the rest of the world is growing. The only places that are not growing are basically South Africa and Brazil, so that makes me question what we are doing wrong. That said, tactically, if you came up with an innovative solution and needed investment, you would take that idea overseas. That is, of course, if the December Elective Conference goes wrong.”

Walker says if the December Elective Conference outcome is perceived as positive, there could be an entirely different outlook. “We could see pent-up demand coming to the fore. Suddenly people are back on track, there will be a lot more investment and then an exact 180-degree picture emerges. The perception that South Africa is back on track, could herald in a period of release of pent-up demand, investment, spend on innovation and rolling out the infrastructure to enable broadband in rural areas, fibre and others that the country gravely needs.”  

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