IT services spending in South Africa is expected to increase 8.8% year on year in 2016 to total $5 billion, according to the latest forecasts from International Data Corporation (IDC). Referencing its recently published report, ‘Africa IT Services Market 2015–2019 Forecast and 2014 Vendor Shares’, the global research and consulting firm today said it expects outsourcing services to continue to garner broad appeal as companies increasingly look to limit and predict their costs and optimize their current investments.
The considerable shifts in the rand/USD exchange rate are having a significant impact on the local IT services market. Spending on IT services in 2014, for instance, declined 1.5% year on year in U.S. dollar terms, but when measured in the local currency, it was up 10.7% over the same period. Currency volatility is closely linked to both macroeconomic factors and local market conditions. Similar to other emerging markets, South Africa is subject to weak external demand and soft commodity prices, as well as deep-seated structural issues.
Given the ongoing economic challenges, the outsourcing services macromarket remains the largest in South Africa and is expected to comprise 44.3% of the country’s IT services landscape in 2016. This will be predominantly due to increased spending in the managed services space as organizations increasingly make use of outsourcing services to drive greater efficiencies and cost reductions.
IDC expects IT services spending in South Africa to increase at a CAGR of 7.9% over the five-year forecast period to reach $6.8 billion in 2019. Information systems consulting will be the fastest growing service, expanding at a compound annual growth rate (CAGR) of 13.7%, as organizations seek guidance on how best to incorporate 3rd Platform technologies like cloud, social, and mobility so as to gain an edge in the increasingly competitive marketplace. The other top-performing services in terms of growth over the forecast period will be application consulting and customization (12.6%) and combined systems integration (12.4%).
“As South African businesses continue to struggle with the effects of macroeconomic trends and internal challenges, businesses will seek to make informed decisions when considering their ICT spending plans for 2016 and beyond”, says Lise Hagen, IDC’s research manager for software and IT services in Africa. “The increasing demand for innovative solutions to common operational challenges is a priority for decision makers when purchasing IT services. An increasingly mobile workforce will have a significant impact on purchases spanning the whole technology stack of software, hardware, and IT services.”
Dimension Data ranked as the leading IT services provider in South Africa in 2014, with 12.0% share of the market’s overall value. BCX ranked second, with EOH in the third spot. Local providers, which are also expanding their African and international footprints, are playing an increasingly dominant role in the South African market. IT services providers are continuing to pursue active merger-and-acquisition strategies in the South African market as they bid to acquire access to intellectual property (IP) and infrastructure, and expand their geographic reach.