Development of the ICT sector in SA should be a priority for Treasury

Development of the ICT sector in SA should be a priority for Treasury

Although there are a number of positive elements in the 2011 Budget speech by Mr Pravin Gordhan it is clear that the development of the ICT sector in South Africa is not a priority for the treasury. This is according to Marthinus Strydom, CIO of the McCarthy Motor Group who explains that implementing a proper, workable broadband strategy will unlock SME growth and job creation as well as increase foreign investment in SA.

According to documented research 1 The SME sector has an important role to play in economic development, poverty reduction and employment creation in developing economies. “The link between ICT and growth is strong in developed economies: a report from the Economist Intelligence Unit in Europe 2 shows that a cross-section analysis of 60 countries confirms the view that ICT is strongly linked to economic growth in developed countries,” says Strydom.

Countries such as the US, the four Nordic countries, the UK, Netherlands and Switzerland have shown the fastest labour productivity growth. “The UK’s ICT sector employs over a million people who contribute 10% of their GDP,” he says. Yet in South Africa the lack of proper bandwidth has resulted in the cancellation of two multi-billion rand investments in South Africa that Strydom is aware of.

According to reports3, countries with high penetration levels for fixed telephone lines, mobile phones, personal computers and the internet appear to achieve the greatest economic benefit from ICT. “However, this research also shows that ICT penetration and usage needs to attain critical mass before it will make a significant positive impact on a country’s economy – this doesn’t bode well for SA while Telkom continues its monopoly on fixed line infrastructure,” he believes.

“The cost of bandwidth in South Africa is still extremely high and the infrastructure to grow our broadband is sorely lacking. One just has to take a drive through town to see almost every telephone pole without any telephone cables. Why? Because they have been stolen and Telkom refuses to replace them.”

“Without fixed lines we cannot deliver broadband and as a country we are missing out on the enormous growth that broadband has delivered to first world economies. Due to the lack of fixed lines many people and businesses are relying on mobile connectivity (3G) and this picture is even worse.

“The quality of our mobile data connectivity has seriously deteriorated over the past few months and there are no answers coming from Vodacom, MTN or Cell C. We must have one of the worst mobile infrastructures in the world and an even worse fixed line infrastructure. The amount of R100 million that will benefit business according to the treasury budget report is a pittance compared to what we need.”

He explains that the National Treasury allocated R100million to “Broadband ICT” in 2011/2012, increasing the amount to R150million in 2012/2013 and R200million in 2013/2014. In total R450 million has been allocated to develop the broadband strategy, the broadband policy of government, and the broadband infrastructure and services in underserviced and rural areas.

“This may seem like a big number but to put it in perspective, there are probably more than 100 companies in South Africa whose total ICT budget exceeds R400 million, each,” explains Strydom. “R400 million is a very small number and only R100 million will actually benefit businesses. The rest will be spent on government and rural areas.”

The 2011 Budget Review states that “An affordable, efficient and widely distributed telecommunications network is important for raising productivity and accelerating economic growth. South Africa’s telecommunications infrastructure has improved significantly over the past few years. Two new undersea cable networks (SEACOM and EASSy) have increased available bandwidth. This has contributed to faster internet speeds and lower prices.”

“While these sentiments as expressed by the Budget Review are to be applauded there are some serious challenges before we can get there,” he emphasises.

At least the Budget Review acknowledged that “The cost of internet access, however, remains high and penetration is still relatively low. Only a quarter of broadband subscribers have fixed-line (ADSL) connections. Fixed-line broadband technology is cheaper and faster than wireless technology.”

Strydom continues: “Even though government acknowledges these problems too little is being done to fix the problems. It seems that government is still not realising that implementing a proper, workable broadband strategy will unlock SME growth and job creation as well as increase foreign investment.

“The answer is to break the Telkom monopoly on fixed line infrastructure. According to the Treasury, Telkom’s monopoly of the local loop – the last stretch of infrastructure connecting homes or businesses to exchanges – means that fixed-line prices remain high.

“Government must build and repair the fixed line infrastructure and use technology effectively to prevent cable theft. Further, we must reduce (control) the cost of bandwidth and reign in the mobile monopolies to reduce mobile charges.”

According to Strydom,”If government is serious they could fix this problem fairly quickly, but it seems that they do not see it as a high priority, probably because they don’t understand the potential spin-offs and benefits that it will bring. In Mr. Pravin Gordhan’s speech all the right noises were made but it’s not backed up with workable plans and certainly not with enough money.”

Ends

Reference 1: ICT usage and its impact on the profitability of SMEs in 13 African Countries, MIT Press 2008, Volume 4, Number 1, Fall 2008, 87-100.

Reference 2 & 3: Economist Intelligence Unit, 2004, Reaping the benefits of ICT, Europe’s productivity challenge. Author: Dennis McCauley.

2011 Budget woefully inadequate

2011 Budget woefully inadequate

Pravin Gordhan

Although there are a number of positive elements in the 2011 Budget it is clear that the development of the ICT sector in South Africa is not a priority for the treasury. The National Treasury allocated R100million to “Broadband ICT” in 2011/2012, increasing the amount to R150million in 2012/2013 and R200million in 2013/2014.

In total R450 million has been allocated to develop the broadband strategy, the broadband policy of government, and the broadband infrastructure and services in underserviced and rural areas.

This may seem like a big number but to put it in perspective, there are probably more than 100 companies in South Africa who’s total ICT budget exceed R400 million, each. R400 million is a very small number and only R100 million will actually benefit businesses. The rest will be spent on government and rural areas.

“An affordable, efficient and widely distributed telecommunications network is important for raising productivity and accelerating economic growth. South Africa’s telecommunications infrastructure has improved significantly over the past few years. Two new undersea cable networks (SEACOM and EASSy) have increased available bandwidth. This has contributed to faster internet speeds and lower prices,” the 2011 Budget Review said. These sentiments as expressed by the Budget Review are to be applauded but there are some serious challenges before we can get there. Our cost of bandwidth is still extremely high and the infrastructure to grow our broadband is sorely lacking. One just has to take a drive through town to see almost every telephone pole without any telephone cables. Why? because they have been stolen and Telkom refuses to replace them. Without fixed lines we cannot deliver broadband and as a country we are missing out on the enormous growth that broadband has delivered to first world economies. Due to the lack of fixed lines many people and businesses are relying on mobile connectivity (3G) and this picture is even worse.

The quality of our mobile data connectivity has seriously deteriorated over the past few months and  there are no answers coming from Vodacom, MTN or Cell C. Yesterday I had to make 5 phone calls to complete one call. A call that should have taken no more than 10 minutes ended up taking 25 minutes to complete and probably cost 5 times as much. This is happening so often that I am starting to think that it’s being done on purpose in order to make more money from consumers. We must have one of the worst mobile infrastructures in the world and an even worse fixed line infrastructure. The amount of R100 million is a pittance compared to what we need.

At least the Budget Review acknowledged that “The cost of internet access, however, remains high and penetration is still relatively low. Only a quarter of broadband subscribers have fixed-line (ADSL) connections. Fixed-line broadband technology is cheaper and faster than wireless technology.” Even though government acknowledges these problems too little is being done to fix the problems. It seems that government is still not realising that implementing a proper, workable broadband strategy will unlock SME growth and job creation as well as increase foreign investment. I know of at least 2 multi-billion rand investments that were cancelled due to the lack of proper broadband in SA.

The answer is to break the Telkom monopoly on fixed line infrastructure. According to the Treasury, Telkom’s monopoly of the local loop – the last stretch of infrastructure connecting homes or businesses to exchanges – means that fixed-line prices remain high.

In my opinion we must build and repair the fixed line infrastructure and use technology effectively to prevent cable theft. We must reduce (control) the cost of bandwidth and reign in the mobile monopolies to reduce mobile charges.

If government is serious they could fix this problem fairly quickly, but it seems that they do not see it as a high priority, probably because they don’t understand the potential spin-offs and benefits that it will bring. In Mr. Pravin Gordhan’s speech all the right noises were made but it’s not backed up with workable plans and certainly not with enough money.

So in a nutshell, what will this budget mean for ICT and for broadband?… very little I am afraid.

Cloud computing – SA in danger of being left behind

Marthinus Strydom - CIO and Marketing Director of McCarthy Motor Group

Cloud computing is a rapidly growing software service trend globally, however South Africa is in danger of being left behind.

According to Marthinus Strydom, CIO and Marketing Director, McCarthy Motor Group, “Government needs to take serious action against the companies that continue to exploit and overcharge South Africans for bandwidth.”

“As cloud computing applications become more sophisticated and utilise streaming capabilities, substantial bandwidth, sustained connectivity and reasonably priced internet is essential to maintaining business function, especially when one considers that 37% of emerging SMEs do not have internet connectivity1.”

Figures from Arthur Goldstuck’s, WorldWideWorx revealed that in 2009 only 10.8% of the South Africa population had access to the internet, and according to The Internet Society of SA (ISOC-ZA) broadband access available from Telkom, is still 286% more expensive than a comparative Egyptian service2.

“While steps in the right direction have been made by Government and the industry which will see internet and bandwidth quality improve in 2011, more needs to be done.”

“Telkom’s upgrade of the SAT3 cable and the launch of Seacom earlier this year have set the ball rolling. However, the Seacom cable is only using a fraction of its capacity because of lack of competition within the South African market and it is estimated that it will be a further 5 years before Seacom operates at capacity3.”

Strydom adds: “I disagree with many local experts who doubt that cloud computing will not become mainstream,” he adds. “The pure convenience of being able to store and access data centrally from anywhere using any device is a strong business driver.”

Cloud computing is a rapidly growing software service trend that has the ability to transfer day to day services such as email, data storage, back-ups and resource sharing onto the web. This offers South African business the opportunity to cut is operations costs significantly while leveraging off the superior infrastructures and security of established cloud computing service providers. I.e. Google, IS, Symantec etc.

“Cloud computing will allow for less pressure on company resources and business will only pay for the services they use,” adds Strydom.

As a result, South African business is hungrily pursuing cloud computing, with 26% having already deployed a software as a service security solution via the cloud/internet. According to Gartner, companies will invest $112bn in cloud computing services over the next 5 years. The move is inevitable despite concerns around safety, security and data integrity4.

“According to Gartner, global revenue from cloud computing is expected to reach $68bn by the end of the year5. Cloud computing will continue to grow and influence hardware development as ‘form follows function’. The hard drive will be replaced by the solid state drive, a superior technology but currently offers less capacity for data storage because leading markets are embracing the services cloud computing offers.”

Big Trouble for businesses who don’t comply with Protection of Personal Information Act

The Protection of Personal Information Act aims to protect consumers from the sale or illegal use of any personal information without their permission. This is good news for the consumer (all of us) as it ensures the protection of our data and stops all the unsolicited direct marketing attempts from businesses that bought your details for the right price from highly reputed and listed companies. However, for business the act means that drastic changes need to be made in how companies market and use customers’ personal information.

 Companies that ignore the Act will do so at their peril. Consumers are fed up with up the tons of spam that finds its way into our inboxes and onto our mobiles and the realities are that in South Africa, a startling 91% of all emails are spam.

 The Act consists of 8 information protection principles which conform to international standards, these range from Accountability to Security Safeguards. The responsibility for the monitoring and enforcement of compliance will rest with the Information Protection Regulator and organisations that fail to comply with the Act will face civil liability claims, criminal sanctions, significant reputational damage and in severe cases a 10 year prison sentence.

South African business needs to make sure that their policies, processes and training are up to standard because there are many areas where a company can fall short. Businesses need to make sure that they have centralised databases containing customer information as well as up-to-date opt-out lists. Processes and policies with employees and third parties have to be water tight to avoid liabilities and regular training needs to be introduced in order to teach employees the correct and safe way to process and store customer information because a spreadsheet on Excel is no longer acceptable.

Most retailers, especially those with a decentralised marketing approach (i.e. every branch does its own marketing) are particularly vulnerable. These businesses with many branches, systems and customer databases will have to make will have to make substantial changes. A single customer repository or database is essential because if a customer wants to opt-out at one branch, they actually opt-out of the entire company and if the customer still continues to get marketing messages from another branch then the company will be held accountable.