Alarm bells ringing for SA ICT sector?

Recent earnings results for local players in the IT space indicate that firms are targeting African expansion amid a lack of real growth in South Africa.

On Thursday (April 19, 2012) ICT group, Business Connexion (BCX) reported a 43.5% rise in revenue for the six months ended February 2012 to R2.69 billion, while operating profit increased from R40.2 million to R130.8 million.

However, business research and consulting firm, Frost & Sullivan noted continued challenging operating conditions in some of its divisions in SA.

Information and communication technologies research analyst at F&S, Mervin Miemoukanda questions whether BCX is likely to achieve its forecasted profit margin of 8% for the full year, due to a lack of closing existing and new large outsourcing deals in the public and corporate sectors.

“In South Africa, BCX Group’s overall revenues are expected to remain under pressure, as turnaround time for tenders in the public sector becomes much longer,” Miemoukanda said.

He added that the Treasury has, in fact, been conducting tender audits in the public sector, thus having a detrimental impact on the company’s revenues – particularly in the technology division one.

BCX underlined a 28.7% decline in revenue in its technology division to R429 million.

Frost & Sullivan said it believed that the company’s international operations would become a key revenue contributor in the medium to long term, as the company moved its traditional outsourcing business towards cloud services in its flagship market, SA.

Indeed BCX CEO, Benjamin Mophatlane said that the company will be investing into further acquisition targets into Africa, in order to increase its growth into the region.

Business Connexion boasts operations in Ghana, Nigeria, Tanzania, Namibia, Mozambique, Kenya and Zambia.

“The pipeline in Africa is healthy, it’s the first time that the international operation has made a profit,” Mophatlane said. He highlighted a significant $20 million public sector deal in Ghana, adding that the group had also started to win business in Nigeria, “a key market”.

The company lead described Mozambique as the “best kept secret in Sub-Saharan Africa” with Business Connexion having resigned a contract with mining giant, Rio Tinto there.

Mophatlane said that the ICT group would continue to invest in Kenya, with a number of “significant” deals expected soon. “The international division is in the best health it’s been for a very long time,” Mophatlane said.

Similarly, information risk management (IRM) group, SecureData Holdings (SDH), also on Thursday (19 April 2012), reported a decline in operating profit to R6.109 million for the six months ended January 2012, from R9.093 million before.

“Overall, the group did not deliver on expectation. The board made a decision to turn all its focus and attention on its African operations,” the group said in a statement.

Kenya IT ambition

Kenya is serious about technology. The country has set a goal to become the information and communication technology (ICT) and business process outsourcing (BPO) hub of choice for Africa by 2030, and ensures a relatively transparent regulatory environment.

Kenyan telecoms operator, Safaricom announced earlier this week that it will lay a fibre-optic cable network in expectation of a mobile “data tsunami”.

The group’s CEO told Reuters that it also sees Kenya positioned as a possible information technology hub for the entire continent.

Safaricom expects a surge in demand for data services in the east African nation of 40 million people, thanks to an explosion of Internet-ready hand-held devices, an increase in the number of relevant applications and content.

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Alarm bells ringing for SA ICT sector?