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.

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