Research on the Performance of the Services Sector

Main Growth Areas

The ICT sector has grown over the years and is expected to continue to grow as new technologies emerge and the industry becomes more innovative and competitive. The main areas for expected growth are Internet usage, Broadband speed and quality and ICT technologies.

Increased Internet access and usage by emerging and developing countries

Improved technology and speed and quality of broadband

Widespread use of broadband networks create an opportunity for growth and development in innovation and competitive advantage

Key Problem Areas

Key challenges to the growth of the international market are:

Human capital and innovation- there is a shortage of skilled workers in the industry and there is a need to develop the industry through education

Attracting Foreign trade and FDI is a key problem area as the market is extremely competitive and innovative

Infrastructure (telecommunications, electricity, transportation) is an important part of any development especially for ICT where the sector depends on infrastructures such as electricity and road access

Regulatory reform and red tape reduction for policies to improve development of ICT industries and create friendlier business environments to attract FDI

National Trends

In South Africa, the ICT sector has been identified as a key sector for economic growth and long term sustainability. The ICT sector in the country contributes an estimated 7% to the country’s GDP⁵⁵. Over the years the South African economy has shifted from an economy rooted in the primary sectors to an economy that is driven by the tertiary sectors. The economy is now moving towards a knowledge based economy with a focus on technology, e-commerce and financial services. The local IT industry is based in both the services sector and manufacturing sector, and 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. It should be noted 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. Furthermore, whilst South Africa can be characterized as having the most developed telecom networks, this area of the ICT Sector continues to lag behind. In terms of broadband penetration, South Africa has fallen behind many global competitors with similar GDP’S. This includes ICT sectors of countries like Argentina, Poland and Brazil. ⁵⁶According to the Network Readiness Index (2010-2011), South Africa is ranked number 61, well below their African counterpart Mauritius (rank 47). The rest of the other African countries lie within the lower half of the NRI rankings.

Although South Africa has managed to surpass other sub-Saharan countries in terms of development of the ICT Sector, it has recently begun to fall behind. Between 2007 and 2009, South Africa fell five positions from 52^nd to 47^th on the World Economic Forum Readiness Index. ⁵⁷ The drop in the ranking can be attributed to relatively low market penetration especially in broadband in South Africa. The low market penetration is largely due to the high costs of telecommunication and broadband in South Africa, however as more competitors enter the market this shou