Research on the Performance of the Services Sector

EXECUTIVE SUMMARY

This research is undertaken in line with Seda strategic objectives to contribute to the national government’s goal to sustainable and equitable social and economic development, employment and wealth creation. It is a study commissioned to focus on the performance of the Services Sector (Tourism & ICT), and establish its current performance and to identify the possible job creation opportunities. Furthermore, to recommend the effective role that Seda should play to stimulate job creation opportunities among small enterprises in the Services Sector.

In this regard, the Small Enterprise Development Agency (Seda) commissioned FEM Research to conduct Research on the Performance of the Service Sector, focusing on Tourism and the ICT sectors. Seda as an implementing agency of the dti seeks to up scale the support to small businesses operating in the Services sector through its various offerings and contribute to the major goal of job creation as emphasized in the New Growth Path. The Services sector has been identified as one of the key sectors through which significant employment creation could be realised. Within this context, this research study aims to establish how the Services Sector is currently performing; it’s short to long term prospects.

Outcomes of the Study

The findings of this research will serve as the basis for guidance in identifying possible value chains, potential projects, how and what effective role Seda could play in stimulating job creation among small enterprises in the Services Sector. Specifically, the results of this study will facilitate in the development of relevant programmes, products and services for Seda’s targeted clients with potential to contribute meaningfully in job creation within this sector, and contribute to economic growth in the country.

Objectives of the Study

The main objective of the study is to identify opportunities for products and services of Seda in the Services sector, and to provide the basis for the development of a strategy through which such opportunities could be exploited in order to create an enabling environment or support for new and existing enterprises with a potential to create jobs. More specifically, the objectives of the study are as follows:

• 
  Identification of key sector segments and value chains and analysis of key developments within such segments.
  

• 
  Identification of specific opportunities for provision of products and services by local SMMEs.
  
• 
  Identification of barriers and challenges faced by SMMEs and critical factors to operate successfully in this sector.
  
• 
  Identification of the required support from Seda within this sector.
  
• 
  Identification opportunities to leverage existing dti initiatives.
  

Methodology

The following approach was used in undertaking the study:

• 
  A comprehensive desktop research was carried out. This included literature review of various reports on prior studies undertaken on this sector. The main focus was mainly on the review of the tourism and ICT sectors development trends and major growth areas at the international, national and provincial.
  
• 
  Fieldwork Surveys conducted through disseminating questionnaires to Seda clients. The sample size was relatively small, as set out on the TORs where initially, 50 ICT businesses and 50 tourism businesses in this sector were to be profiled across the country. A list of businesses was compiled by FEM Research to survey, and Seda operations managers provided some databases with Seda clients in South Africa. However, a total of 500 businesses were contacted telephonically within each sector.
  

Limitations of the study

Several challenges and limitations have been encountered while undertaking the study. These limitations are highlighted as follows:

• 
  Sample size: The sample size of 50 clients per sector is inadequate with respect to ensuring data validity.
  
• 
  Buy in from provincial offices: Many provincial offices refused to provide a database of clients citing concerns around confidentiality.
  
• 
  Assess links with current programmes
  
  • 
    In assessing the current Seda support little information was provided as to the current status of the existing interventions.
    
  • 
    Results of current M&E: No indication or results of any M&E exercises on current programmes was provided.
    
• 
  Size of the sectors being assessed: The sample size proposed for this study inhibited in-depth analysis of research findings.
  

Key Findings

This part of the report outlines the key findings on international and national trends within the sectors. The subsequent paragraphs will highlight the key results generated through the fieldwork and data analysis process.

Tourism Key Findings

International Tourism Trends

• 
  During 2010, the number of international tourist arrivals worldwide amounted to 940 million
  
• 
  International tourism receipts in 2010 were estimated to be US$ 919 billion
  
• 
  The top three visited countries were, France, the United States and China
  
• 
  International tourism arrivals across the globe grew by 4.5%, the total number of arrivals reaching 671 million in the first eight months of 2011
  
• 
  Eco-tourism represents an opportunity with development potential as more people around the world become environmentally friendly
  
• 
  The promotion of student travel and cultural tourism experiences and packages represent another international growth opportunity
  
• 
  The key challenges were;
  
  • 
    Economic recessions
    
  • 
    Increased competition
    
  • 
    Rising fuel costs
    
  • 
    Increasing tourism volume and expenditure
    

National Tourism Trends

• 
  In mid-2010, tourist arrivals reached a record high of 8, 1 million
  
• 
  The South African sector experienceda15.1% growth in tourist arrivals and it outperformed global tourism which only grew by 6.7% in 2010
  
• 
  The total spend/yield from international tourists in 2010 amounted to R 72.6 billion
  
• 
  Total domestic tourist direct spend for the same period was R 21.1 billion^1.
  
• 
  Africa remains the largest market for the South African foreign tourism
  
• 
  the UK, USA, Germany, Netherlands and France remain the major top five overseas source markets
  
• 
  Tourism’s contribution to GDP in 2009-2010 was 7.9%
  
• 
  The Gauteng and the Western Cape have over the years been considered the most visited provinces in the country and account for the bulk of the bed nights spent in South Africa
  

Challenges faced by Tourism Businesses

Specific challenges faced by tourism businesses stem from the general challenges which are finance, building client bases and marketing.

Finance related challenges include the following:

• 
  Access to working capital
  
• 
  Maintaining cash flow
  
• 
  Managing overheads
  
• 
  Increase in transport costs which in turn increases general costs and reduces the available cash flow and annual profits as companies cannot increase their prices to meet the petrol price increases
  

Specific challenges faced by businesses in terms of building client bases include;

• 
  Little knowledge of marketing which leads to low numbers in client bases
  
• 
  Increased competition from other companies
  
• 
  Little knowledge of the tender processes in order to gain government clients and increase current client bases
  

Marketing specific challenges that businesses faced included;

• 
  Lack of resources to market the business efficiently which in turn leads to low exposure and poor numbers of clients
  
• 
  Lack of marketing knowledge and understanding
  
• 
  Increased competition from other businesses particularly established businesses with better marketing tools and market access
  

Opportunities for SMEs in the Tourism Sector

Accommodation opportunities exist for small businesses operating within the tourism sector, in particular these opportunities are for cheaper accommodation packages and facilities. SMMEs can access opportunities in the accommodation industry by offering accommodation related services. Within the market, there is an increased need for Bed and Breakfast type of accommodation and backpacker facilities as well as more affordable family friendly accommodation.

More pronounced opportunities for emerging and existing small enterprises include the following:

• 
  cleaning services
  
• 
  catering services
  
• 
  laundry services
  
• 
  gardening services
  
• 
  delivery services
  

Furthermore, opportunities are also highlighted in beach tourism, cultural tourism and eco-tourism activities are more suited to small scale operators offering personalised services and activities. These activities include:

• 
  shuttle services
  

• 
  personalised guided tours
  
• 
  hiring of bicycles or equipment such as surfboards and kites etc.
  

SMEs could also exploit opportunities available in terms of providing business support to bigger businesses running tourism and conference facilities. These are the areas with high employment creation potential. These include:

• 
  cleaning
  

• 
  catering
  
• 
  transport
  
• 
  delivery services
  

Key Findings from Fieldwork Surveys

The majority of the businesses that were surveyed in the tourism sector fall within the accommodation sector and are registered as closed corporations. It transpired through the findings that most of businesses in these sector fall within the micro and small businesses bracket that has a turnover less than R 400, 000 per annum and employ less than ten people. The major source markets for these businesses are local government and domestic tourists within South Africa.

Clients Feedback

The businesses were assessed and categorised according to income and number of employees. These indicators were used to determine the size of the businesses. The majority (45%) of the businesses interviewed were small enterprise with an annual turnover of R150,000 or less, 27% have an annual turnover of R150,000 - R400,000 and 14% have an annual turnover of R400,000 - R1 000,000. Only 2% of the businesses interviewed had annual turnovers of more than R1 000,000, while 10% were unaware of their annual turnover as the businesses were less than a year old.

Figure : Annual Turnover

The businesses with the smaller turnovers; 0 - R150, 000 and R150, 000 - R400, 000 generally employ 1-5 employees. The majority (59%) of businesses in the 0 - R150, 000 range employ 1-5 employees, followed by 41% employing 5-50 employees while no businesses that were interviewed employed more than 50 employees. The majority of businesses with an annual turnover of more than R400, 000 employ between 5-10 employees, and none of them employ more than ten. This is interesting to note because despite experiencing growth and expansion from small business it appears as though larger tourism businesses employ a maximum of ten people at a given time.

Table 1: Turnover Bands and Number of Employees

Turnover Category	Number of Employees
	0 – 5	6 - 20	21-50 Employees	Grand Total
0 - R150,000	59%	41%	0%	100%
R150,000 - R400,000	62%	38%	0%	100%
R400,000 - R1 000,000	29%	71%	0%	100%
R1 000,000 and above	0%	100%	0%	100%
Just started	60%	40%	0%	100%

The highest number (76%) of permanently employed workers are found in businesses that employ between 5 and 10 employees, while the lowest number (38%) of permanently employed workers are found in businesses that employ more than 10 employees. Businesses that employ more than ten employees but less than 50 accounted for 40% of the temporary staff employed, and 38% of the permanent staff. The micro businesses that employed between 1 and 5 employees had the highest number (49%) of highly skilled staff. Tourism is affected by seasonality, and it is interesting to note that 28% of micro businesses (1-5 employees) employ seasonal workers, and larger businesses employ even less.

Table 2: Employment Type per Business Category

Number of Employees	Temporary	Contract	Permanent	Seasonal workers	Skilled employees
Micro (1 – 5)	22%	5%	46%	28%	49%
Very Small (6-20)	60%	11%	76%	16%	42%
Small (21-50)	0%	0%	0%	0%	0%

Barriers & Challenges

Through the assessment process firms were asked to outline the current challenges that they face in the day to day operation of their business. From this analysis there are three key problem areas that small business in this sector have identified, these are:

• 
  Finance (43%)- the biggest challenge for tourism businesses was access to finance, the need for start-up capital, expansion capital and cash flow during low season affected almost half of the business interviewed
  
• 
  Building client base (17%)- the high number of tourism businesses and the low number of tourists visiting some areas made it difficult for some businesses to attract and maintain a client base
  
• 
  Marketing (14%)- is a challenge for businesses as they need to have strong marketing techniques to differentiate their businesses and attract clients
  

Table 3: Challenges faced by businesses

Challenges	Count of Challenges
Building client base	17%
Finance	43%
Marketing	14%
Lack of skilled staff	4%
Increase in petrol prices	2%
Training and marketing	4%
None	6%
Struggle to expand	6%
Lack of resources	4%
Grand Total	100%

The following are some challenges documented in detail in subsequent chapters of the report:

• 
  Transformation and Access to Tourism Opportunities
  
• 
  Increasing Distribution and Geographical Spread of Tourism Products and Services
  
• 
  Addressing Seasonality of Tourism Demand
  
• 
  External Factors that Influence Tourism Supply and Demand: Political, economic and social factors such as economic fluctuations, political instability and social unrest can affect the tourism flows
  

Existing Support

Looking at the national and provincial policy interventions it is evident that the growth, development and public sector support of the tourism sector is being driven by the National Department of tourism who are implementing the following strategic interventions within the sector:

1. 
   People Empowerment and Job Creation
   
2. 
   Tourism Sector Transformation
   
3. 
   Sustainable Tourism Growth and Development
   
4. 
   Responsible Tourism Promotion
   
5. 
   Tourism Service Excellence
   
6. 
   Tourism Sector Knowledge and Policy Leadership
   
7. 
   Integrated Tourism Governance
   
8. 
   Public Education, Awareness and Outreach
   
9. 
   A better Africa and a better world
   
10. 
    Human Capital Management
    
11. 
    Good Governance
    

At a provincial level all the provinces have identified tourism as a strategic sector that can contribute positively toward job creation and economic development. Hence all provinces have a specific tourism strategy in place that aims to grow and develop the provincial tourism sector. Some of these policies look at localised aspects such as:

• 
  Development of tourism niche markets areas such as cruise liner tourism, health tourism, sport and mega event tourism, and culture and heritage tourism
  
• 
  Development of new and existing tourism routes
  
• 
  Locals provided with tourism destination exposure i.e. provides access to communities who do not usually take part in tourism experiences
  
• 
  Monitor the rollout of the Tourism BEE Scorecard
  
• 
  Establish tourism routes, nodes and clusters
  

Relevance of SEDA support in the sector

The tourism industry and the businesses that operate within the industry require assistance in four areas; marketing, training, certification, and financial assistance. Seda can provide assistance with marketing and basic business training; as they do not currently offer specialised training specific to the needs of the tourism sector. Furthermore Seda does not offer financial assistance and accreditation or certification that many businesses require assistance with. If Seda were to offer assistance in these instances the programmes they have would be more relevant for tourism businesses.

Required support for SMME’s

A significant number (23%) of businesses interviewed did not require assistance from public or private organisations; however the majority (77%) required various interventions to ensure the sustainability of their businesses. The most requested interventions were;

• 
  Grants and finance (20%), businesses were need of financial assistance to help expand and grow the entity and in some cases it was required to maintain the business
  
• 
  Training (18%) was required by businesses for both owners, and staff. The relatively high number of skilled workers in the industry and the need for further skills show the growth potential for job creation in the sector
  
• 
  Access to resources (16%) such as business support or networks was required by business to ensure sustainability and longevity of entities
  

Table 4: Interventions

Interventions	Sum of Count of Interventions
Access to resources	16%
Grants and finance	20%
Improved infrastructure	9%
Marketing	14%
None	23%
Training	18%
Grand Total	100%

Market Opportunities

Accommodation opportunities exist within the tourism sector, in particular these opportunities are for cheaper accommodation packages and facilities. There is a need for Bed and Breakfast type accommodation and backpacker facilities as well as more affordable family friendly accommodation. Furthermore SMMEs can access opportunities in the accommodation industry by offering accommodation related services. These services include cleaning services, catering services, laundry services, gardening services and delivery services. Furthermore these services have very little entry challenges or barriers and are accessible for SMMEs.

Beach tourism, cultural tourism and eco-tourism activities are more suited to small scale operators offering personalised services and activities. These activities include shuttle services, personalised guided tours, and hiring of bicycles or equipment such as surfboards and kites etc.

Tourism and Conference facilities would be opportunities more suited to big businesses as the start-up costs would be quite large but the opportunities for SMMEs would be in provided services to these facilities. Again these services would include, cleaning, catering, transport and delivery services, which are all quite easily accessed. Furthermore these opportunities would create employment in the areas where they are developed.

Table 5: Opportunities in the tourism value chain

Opportunities	Province
	WC	EC	NC	KZN	GP	Limp	MP	FS	NW
Accommodation	x	x	x	x	x	x	x	x	x
Beach Tourism Activities	x	x
Catering/Food outlets					x			x
Conference Facilities			x		x		x	x
Cultural Tourism				x				x	x
Eco Tourism Activities	x	x	x	x			x
Shuttle Services/Transport	x		x		x			x	x
Tourism Facilities	x	x	x			x		x	x
Training facilitators	x		x

Conclusion & Recommendations

Information from various aspects have been analysed in order to develop the recommendations outlined below. While Seda may not be able to affect all the outlined recommendations it is suggested that partnerships be created so that the assistance measures outlined below can be put in place.

• 
  Funding: With respect to funding just fewer than 50% of firms have identified a need for both short and long term funding assistance. This could probably be linked with the cyclical nature of the sector. As in the case of ICT it recommended that going forward Seda should look at partnering with organizations such as the IDC as well as the DBSA to provide clients with information regarding funding opportunities while also assisting clients in applying for funding.
  
• 
  Marketing & Building a client base: 31% of firms have outlined this as a major problem that they are facing. In this respect there are two recommendations that have been put forward. The first links directly with the next recommendation around training and hence will be discussed there, the second is looking at developing marketing platforms that clients can use at no cost or at a small fee; an example of this is dti’s free website - small businesses can log onto dti’s website and develop their own websites for free, the objective of this is to promote the business online and to support small business development
  
• 
  Training: 18% of firms have outlined the need for some type of formal training programme. In this respect basic as well as advanced training modules need to be developed. It is recommended that Seda develop specific industry based training modules aimed at assisting entrepreneurs who are setting up a business as well as those who are running business. Here also Seda can look at partnering with training institutions as well as institutions of higher education.
  
• 
  Access to resources: A significant number of firms (16%) have outlined the need for basic resources (transport, equipment etc). Once again while Seda is not a funding agency a possible recommendation that can be implemented is the development of geographical industry clusters where participating firms can network as well as agree upon sharing current resources. Thus aiming to fulfill the overall need.
  
• 
  Improving access to support programmes and services: 72% of the businesses that made use of Seda’s programmes thought that the services were effective; however they felt that the services should be improved to include, more marketing and training assistance, assistance in getting funding and that Seda should provide a better follow up service with clients.
  

Seda Clients Feedback

The businesses in the tourism sector that made use of the Seda programmes found them to be effective in assisting the business. However, a large number of the businesses were unaware of the types of programmes that Seda offers. The businesses that had made use of Seda services expressed the need for Seda to provide assistance with funding, increase marketing products and provide a better follow up and communication process with clients. The majority of respondents felt that they would require some form of assistance from Seda, despite being unaware of the product offerings

ICT Key Findings

International ICT Trends

• 
  The total telecommunications market in the five international regions had an estimated USD 3.1 trillion value and this is expected to rise to USD 4.1 trillion by 2014².
  
• 
  In 2010 the five international regions for telecommunications were Canada, Europe, Middle East/Africa, Latin America and Asia Pacific. These countries experienced an increase of 5.5% in telecommunications in 2010
  
• 
  The Philippines is the top exporter, with 66% of its exports being technology. This is followed by Singapore with 51%, Malaysia with 40% and Costa Rica with 39%
  
• 
  The main areas for expected growth are Internet usage, Broadband speed and quality and ICT technologies.
  

3.3.1.2 National ICT Trends

• 
  The ICT sector in South Africa contributes an estimated 7% to the country’s GDP³.
  
• 
  The local IT industry is based in both the services sector and manufacturing sector however that manufacturing within the ICT sector is still within its infancy
  
• 
  South Africa has comparatively higher prices in terms of ICT products, than other African countries, as well as OECD countries
  
• 
  South Africa’s ICT Sector can be described as being relatively concentrated, in terms of market structure
  
• 
  The three main hubs are Gauteng with 57% of ICT firms, Western Cape with 17% and KwaZulu-Natal with 8%.
  
• 
  South African companies specialize in pre-payment, revenue management and fraud prevention systems
  
• 
  Some manufacturing (e.g. Set-top boxes) does take place locally and these products are exported successfully to the rest of the world however this is still in its infancy
  

Specific Challenges

Specific challenges that are faced by businesses in the ICT industry include:

• 
  Access to finance is a serious challenge for ICT businesses as it hampers every aspect of the business from operations and management of cash flows to purchasing of equipment and paying for running costs
  
• 
  Working capital is another big issue that businesses faces particularly in the startup of an ICT business, accessing working capital can be difficult for SMMEs
  
• 
  Skills shortages across the industry affect the operations of the businesses as the labour costs can be higher due to the completion for skilled staff, also businesses that lack the relevant skills experience a decline in their client bases
  
• 
  Lack of resources such as finance, skills, marketing knowledge and training also affect the operations of ICT businesses and hamper growth
  
• 
  Lack of infrastructure is a serious concern as the ICT industry is based on infrastructure and having the necessary infrastructure in place as well as having access to infrastructure is critical to developing a sustainable business
  
• 
  High cost of imports and products for resale affect the cash flow and profit margins as price fluctuations cannot be mitigated yet the price of services and products need to remain relatively unchanged to maintain existing client bases
  

ICT Opportunities

• 
  Software and systems development: While the direct opportunities for development and expansion are limited to the business that is undertaking the opportunity (due to specialised nature of the opportunities) some associated opportunities exist
  
• 
  Training: Opportunities exist within the training field of the ICT sector, these opportunities include providing IT training and computer training and systems support for businesses as well as provide training seminars and conferences for government and IT staff in the industry
  
• 
  Infrastructure provision: the provision of infrastructure such as systems networks and business network solutions is an opportunity for small businesses. Furthermore the opportunity exists to supply service to companies that provide infrastructure development and support services. These services can include maintenance, provision of labour and parts, and providing systems support and network administration services.
  

Businesses in the ICT sector play a role in creating jobs as well as developing skills and assisting in community development. The major challenges faced by these businesses are accessing funding, market intelligence and infrastructure. These challenge and obstacles have negative effects on the businesses and generally cause a decline in sales, slow business growth and higher operational costs. To assist in combating these challenges the businesses in the ICT sector require assistance in developing market intelligence and securing funding. However despite the challenges and obstacles that exist in the industry, these businesses remain optimistic about opportunities that exist in the sector and feel that with funding, training and access to necessary infrastructure the sector will continue to grow and create jobs and develop skills.

Key findings from Fieldwork Surveys

The majority of the ICT businesses that participated in the survey are established and have been in operation for more than three years. The bulk of the businesses are registered as closed corporations and have an annual turnover of less than R 1 000,000 and employ less than 10 people. The major source of clients for these businesses is South Africa, only a small percentage (6%) of the businesses interviewed for this study had non South African clients. The results from the data analysis show that the majority of the entities that were surveyed had been registered as Closed Corporations (88%) followed by Pty Ltd’s (6%). Regarding the type of business operations that the firms are involved in it is evident that Sales and Distribution is the largest contingent counting 53% of all firm surveyed. Another important area that firms operate in is in the software design and web design ambit (33%).

Seda Clients Feedback

When asked about the programmes that Seda should offer, most respondents wanted to see more marketing and networking tools as well as business funding options through Seda. Furthermore, only 22% of the respondents felt that Seda offered a unique service compared to other development organisations while 46% of the respondents stated that they were unaware of the exact offerings and could not compare Seda to other organisations.

Seda offers a number of programmes that are relevant to the start-up needs of ICT businesses and offer assistance and training to run and mange a businesses, but the industry requires specialised training and mentorship which is not currently available from Seda. However Seda does offer ICT specific programmes such as the ICT incubation programme and Seda Technology Programme. One major problem that businesses faced when dealing with Seda is that they felt the training provided was not sector specific.

While the majority of the businesses had not made use of Seda’s services and were unaware of the exact product and service offerings of the organisation, 64% still requested assistance or support from Seda for their business. OF the respondents that had made use of Seda’s products and services, the majority would like to see more marketing, training and funding services in the future, while 41% felt that Seda could improve their current customer service delivery and speed up the processes when assisting clients.

Table 6: Type of Company

Type of Company		Type of Service
Closed corporation	88%	Sales	53%
Pty ltd	6%	Software design	33%
Section 21	4%	Film & media	11%
Trust	2%	Other	3%

The tables below have been compiled to further assess the link between employment and annual turnover described above. From the table below it is evident that the bulk of the firms who have a turnover of less than R1 million also only employ up to a maximum of 10 individuals.

Table 7: Annual turnover and employment

Annual Turnover	Number of Employees
	Micro (1 – 5)	Very Small (6 – 20)	Small (21– 50)
0 - R150,000	67%	23%	0%
R150,000 - R400,000	100%	0%	0%
R400,000 - R1 000,000	78%	22%	0%
R1 000,000 - R2 000,000	33%	67%	0%
R2 000,000 - R4 000,000	25%	50%	25%
Greater than R4 000,000	0%	33%	67%
Grand Total	62%	30%	8%

In the case of firms with a turnover of R0 – R150 000, 94% have 10 or less employees (67% have 1- 5 employees, 27% have between 5 – 10 employees). As the turnover rises it can be seen that this changes with 50% of firms having a turnover of R2million to R4million employing between 10 and 50 employees while all firms having a turnover of greater than R4 million employ in this range.

In order to get a better understanding of the sector and the businesses that function in it, a cross tabulation was conducted between the number of employees and the type of employment. From the analysis it is interesting to note that across all business sizes the number of permanent contracts comprise between 60 – 70% of the total employees. A positive note is that the industry does not experience much seasonality however temporary employment seems to be well entrenched (firms with 10 – 20 employees have 27% of their staff on temporary contracts).

Another interesting observation is regarding highly skilled workers, from the analysis it is evident that the % of skilled workers within the firms decline as the number of employees increase. This has important implications for job creation in that if the small firms grow the jobs that they will create will allow for semi-skilled individuals to enter the job market.

Table 8: Number of Employees

Categorisation	Temporary	Contract	Permanent	Seasonal	Highly skilled
Micro (1 - 5 Employees)	30%	8%	80%	16%	77%
Very Small (6 - 20 Employees)	6%	6%	12%	2%	63%
Small (21 - 50 Employees)	0%	0%	8%	0%	47%

3.3.1.4 Barriers & Challenges

Through the assessment process firms were asked to outline the current challenges that they face in the day to day operation of their business. From this analysis there are three key problem areas that small business in this sector have identified, these are:

Funding: 37% of business identified access to short term funding (working capital) as being a problem. Many businesses have noted the unwillingness of financial institutions to assist them.

Market Intelligence: 29% of business have identified that a key problem that they face is the lack of knowledge of what are the current growth and development trends in their sector. They argue that due to their size they cannot spend resources on market research and have asked for assistance in this regard. Firms have noted the importance of this given that the ICT sector is ever changing and developing.

Infrastructure: Unlike the firms that required working capital that point highlights the fact that many firms (13%) have indicated the need for funding assistance so that they can purchase the necessary infrastructure to compete efficiently.

Other points that have been raised by firms are around skills development (8%) as well as payment delays (5%) and transport costs (3%).

Table 9: Challenges faced by business

Challenges	Percentage
Funding	37%
Import Costs	6%
Infrastructure	13%
Market Intelligence	29%
Payment Delays	5%
Skills	8%
Transport	3%
Grand Total	100%

The desktop analysis has also revealed the following challenges within the sector:

• 
  Skills shortages in development, building and maintenance of IT systems & Skills shortages of IT specialists in the manufacturing industry
  
• 
  Skills shortages in IT and Communication sections of businesses in South Africa
  
• 
  High cost of telecommunications and internet access
  
• 
  Low numbers of South Africans with access to personal computers (4% of South Africans) and internet subscriptions (1% of South Africans)
  
• 
  Lack of financing for businesses and access to finance for capital and expansion
  
• 
  Foreign Exchange Rates and Economic Influences
  

Existing Support (National & Provincial Government)

Assessing National and Provincial policies and support programmes it is evident that almost all provinces have a strategy specifically designed for the development of the ICT sector. At a national level the Department of Communications has established various critical programmes aimed at rapidly developing the sector⁴:

Programme 1: Governance and Administration- provide strategic support to the ministry and overall management of the Department

Programme 2: International Affairs and trade- to ensure alignment between South Africa’s international activities and agreements in the field of ICTs with South Africa’s foreign policy.

Programme 3: ICT Policy Development- Develop ICT policies, legislation and strategies that support the development of an ICT sector and develop strategies that increase the uptake and usage of ICTs by the majority of the South African population.

Programme 4: Finance and ICT Enterprise Development- to oversee and manage government’s shareholding interest in public entities and to facilitate growth and development of Small, Micro and Medium Enterprises (SMMEs) in the ICT sector.

Programme 5: ICT Infrastructure Development- to promote investment in robust, reliable, secure and affordable ICT infrastructure that supports the provision of a multiplicity of applications and services.

Programme 6: Presidential National Commission- to facilitate the development of an all-inclusive information society by promoting the uptake and usage of ICTs for improved socio economic development and research.

At a provincial level there are also a number of projects that are aimed at assisting with the development of the ICT sector i.e.:

The Khanya Technology in Education project, which aims to improve teaching and learning through the use of ICT technologies in schools (Western Cape)

The Telecommunications project, which has already linked almost all schools in the Western Cape to the internet- except for a few which still struggle with electricity connections

Eastern Cape Information Technology Initiative (ECITI) has been launched by ECDC. This programme provides support to local ICT SMMEs. It provides a local ICT business incubation hub, provides software research and development opportunities and education.

Limpopo’s ICT Institute Programme aims to produce ICT skills which are lacking in the provincial industry, for societal and economic development. Its objectives include further skills training so that skilled individuals are market-ready and job-ready

KwaZulu-Natal has launched an initiative which aims to bridge the digital divide through the establishment of twelve digital community hubs. These hubs have been set up in rural areas such as Hammarsdale, Umzumbe, Vryheid, Mandeni and Edendale⁵.

The Free State has launched an initiative called the “SMME Incubation Hub”- this project has an investment value of R100 million. This initiative aims to provide physical space to new ICT businesses and to provide service to help these businesses in their early stages of development. Services include: business support, help with access to finance, management coaching and business administrative services to help small developing businesses.

Relevance of SEDA support in the sector

Seda offers a number of programmes that are relevant to the start-up needs of ICT businesses and offer assistance and training to run and mange a businesses, but the industry requires specialised training and mentorship which is not currently available from Seda. However Seda does offer ICT specific programmes such as the ICT incubation programme and Seda Technology Programme. One major problem that businesses faced when dealing with Seda is that they felt the training provided was not sector specific.

Required support for SMME’s

During the field work phase of the project firms were asked specifically what type of interventions they required. Interestingly while skills development had been ranked lower than other challenges it is in greatest demand (35%) by firms in this sector. Linked with the above findings interventions in the areas of:

• 
  Providing market intelligence is in high demand by firms (30%)
  

• 
  Assisting firms with procuring short term funding (26%)
  

An important note that has been made by firms linked to the idea of infrastructure is the provision of Incubation programmes (4%). These interventions have proved very successful in provinces such as the Western Cape and should be seriously considered going forward.

Table 10: Interventions

Interventions	Percentage
BEE Certification	4%
Funding	26%
Incubation Programmes	4%
Market Intelligence	30%
Skills Development	35%
Grand Total	100%

Market Opportunities

The analyses of the various provincial strategies as well as other desktop sources (value chain) and the field work have pointed to the existence of the following opportunities at a provincial level:

Table 11: Opportunities in ICT Value Chain

Opportunity	Province
	WC	EC	NC	KZN	NW	Limp	MP	GP	FS
Business application software					x	x	x
Cctv systems	x
Creative industries		x				x	x	x	x
Document management systems	x						x
e-learning, e-banking software development			x		x		x	x	x
e-waste management	x						x
Internet and wifi provider		x		x	x	x		x
IT training and software development	x			x		x		x
Multimedia platforms	x	x							x
Network development				x				x
Online marketing	x	x	x				x
Social media platforms and software	x	x	x
Telecommunications and technology development	x	x				x			x
Voice over IT								x
Website development			x	x	x		x

Conclusion & Recommendations

Through the analyses that have been conducted it is clear from the attributes outlined in the value chain, the data analysis and the desktop material that the sector is critical for the long term growth and development of the economy. This being said it is also clear that the sector is currently mainly service driven with very little manufacturing taking place. In order to grow and develop the sector further the following interventions have been proposed. Please note that while Seda may not be able to affect all these interventions directly they can partner with other organizations to do so:

Skills development: 35% of firms interview in this sector have identified this as a gap, this has further been reiterated in the findings from the desktop study. For this reason it is recommended that Seda develop a suite of training initiatives aimed at assisting businesses in the sector.

Providing market intelligence: 30% of firms have identified this as a key problem area. Given this finding it is recommended that Seda look at partnering with the department of communications to conduct and regularly publish information on the sector

Assisting firms with procuring short term funding: 26% within this sector have outlined the need for assistance in this regard. While it is noted that Seda is not primarily a funding agency, it is recommended that going forward Seda should look at partnering with organizations such as the IDC as well as the DBSA. Seda should also look at providing a yearly list of potential funders to their clients.

Market Intelligence: 29% of firms have identified the need for assistance in understanding the changing business environment in which they work. Many firms have outlined the fact that it is difficult to grow their business as they do not have access to market information. In this respect it is recommended that Seda provided annual sector analyses that outline the current and future growth trends. Note this information should not be publically available and should be given only to participating Seda clients.

Infrastructure: Over 10% of firms have outlined the need for long funding to ensure the sustained growth and development of their business. This is closely linked to the earlier funding point and the recommendation outlined above should also be followed in this respect. Seda could also look at establishing incubator programmes (please see information regarding the Western Cape).

Improved access to support programmes: 43% of the ICT businesses made use of Seda’s services and participated in the programmes. 41% of these businesses felt that there was room for improvement in the organization with the following in particular;

Better communication channels and follow up processes with clients

Improved processes as well as faster service delivery of products and programmes and general assistance

PART 1

Contextual overview

This part of the report comprises of two sections providing a desktop report on the two focus sectors of the Services Sector namely the Tourism and ICT Sectors respectively. It provides deeper insights into understanding these identified sectors. These are mainly the findings derived from reviewing existing literature on prior research that has been undertaken in this sector. The main focus is on the growth development trends and existing support structures in terms of policy and legislation.

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