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    Home»Sections»IT services»Gartner surprisingly upbeat on IT sector growth in South Africa

    Gartner surprisingly upbeat on IT sector growth in South Africa

    IT services By Duncan McLeod24 July 2019
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    South Africa is expected to be the fourth fastest-growing major IT market in the world in 2019, according to new research from consultancy Gartner.

    The bullish prediction might sound surprising given the moribund state of the South African economy, but Gartner research vice president and distinguished analyst John-David Lovelock said the strong performance will be driven by companies’ embrace of cloud computing – particularly on the back of investments by international cloud providers in local data centres – as well as corporate investments in software deployments and upgrades.

    IT spending in South Africa will total R303.5-billion in 2019, a 3.9% increase from 2018, according to the Gartner research. The growth is likely to moderate into 2020, driven lower by poor demand in the consumer device segment — IT services and software are expected to continue to perform well.

    There are no new people to whom to sell a mobile phone. That has taken the market into a replacement-only cycle

    “South Africa is still behind in terms of overall IT spending and continues to have a ‘technology debt’ to pay off. However, by achieving 3.9% growth in 2019, South Africa will be one of the fastest-growing countries in the world — ranked fourth globally,” Lovelock said.

    The upbeat forecast is even more surprising given Gartner’s expectation that communication services revenue (voice, data, fixed and mobile) — which is included in the total market figure — is likely to grow only slightly and consumer demand for PCs, tablets and smartphones is expected to come under severe downward pressure.

    South Africa’s broader IT market will grow faster than only those of India, Israel and Singapore respectively, Gartner predicts.

    Cloud-driven spending

    Speaking to TechCentral from Toronto, Canada on Tuesday in advance of the release of the research results, Lovelock said growth in the IT industry in South Africa, which has been driven by consumer device sales in recent years, will switch to enterprise, cloud-driven IT spending.

    The consumer device market — including PCs and mobile phones — in South Africa is now at saturation, Lovelock said. “There are no new people to whom to sell a mobile phone. That has taken the market into a replacement-only cycle.”

    The problem is, like much of the rest of the world, replacement cycles are getting “much longer”. Phone upgrades are not as compelling as they once were, meaning consumers are holding onto their devices for a lot longer.

    Gartner expects consumer spending on devices to decline by 2020, and to keep contracting through to 2023. “Saturation in the PC, mobile phone and tablet device markets has limited the number of new buyers. And spending on mobile phone replacements and upgrades won’t be enough to sustain current spending levels,” said Lovelock.

    Spending on devices in South Africa is projected to total R46-billion in 2019, up 3% from 2018. However, in 2020, the number is expected to contract by 12.3%. In contrast, software sales are expected to climb by 11.4% in 2019 to R32.1-billion and by 11.5% in 2020 to R35.9-billion. IT services will enjoy growth of 5.3% in 2019 and 4.9% in 2020 to reach R88-billion.

    CIOs must decide whether to build on-premise data centres or use the public cloud – and the cloud is prevailing

    Communications services remains the biggest segment, with R132.8-billion in spending expected in 2019 (up 2.3% on last year), reaching R133.6-billion in 2020 (up 0.5% on 2019). The move to 5G networks and the Internet of things is unlikely to have much impact on service providers because downward pricing pressure will remain, Lovelock said. First-mover advantage in 5G “won’t last long”, while IoT is “not likely to be as big a boom as the operators might hope it will be”.

    Corporate spending on cloud services and digital transformation is likely to be the sector’s saving grace in the coming years, Lovelock said. “People who did not have cloud are now piling in. Spending (in South Africa) is almost all cloud-based growth,” he said.

    “CIOs must decide whether to build on-premise data centres or use the public cloud — and the cloud is prevailing,” he added. This is being aided by the launch by Microsoft and Amazon of local hyperscale data centres.

    ‘Open arms’

    Though there is some trepidation among South African IT services companies and systems integrators about the arrival of these global cloud providers, Lovelock believes they should “welcome the cloud giants with open arms”.

    It’s these local companies that understand the market and they have a “wonderful opportunity” to capitalise on the cloud infrastructure being deployed. If they treat the cloud giants as a threat, both they and the cloud providers will “lose”. And if local developers don’t embrace cloud, “they will be in trouble”.

    “This fear reaction from IT services companies is nothing new. Where we see companies or regions where they get this fear response, everyone loses out,” Lovelock said. “The IT services companies start pushing companies to where their comfort levels and skills sets are and the cloud vendors end up having to spend more to push their way into the market — which means, at the end of the day, that the end user is spending more.” — © 2019 NewsCentral Media

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