South African ICT Sector Development Framework

Chapter 2
Situation Analysis

The ICT Sector is seen as providing the potential for economic growth and substantial new job creation in both developed and developing countries. This is supported by the substantial size and sustained growth of the sector worldwide. The global market for the year 2000 2001 is estimated to be in excess of $US 2 trillion. Although South Africa’s share of the global ICT market is small, at approximately $US 10 billion, the sector holds promise of being a significant and growing contributor to economic growth in domestic and export markets. Furthermore, the sector has the unique opportunity, both directly and as an enabler for other sectors, to contribute in a substantial manner to sustainable economic development, social upliftment, and empowerment.

This Chapter sets out the context for ICT Sector development in South Africa. It defines the ICT Sector and provides the rationale for that definition. It profiles the ICT Sector both globally and in South Africa. In addition, it lays out the key strengths, key issues, and related opportunities that directly impact on the strategic choices open to South Africa. 

Defining the ICT Sector

It is no longer sufficient to consider the development of an information technology industry strategy. The convergence of information technologies and communications, particularly as exemplified in the explosive development of the Internet, leads to the necessity to broaden the perspective to the ICT sectorICT Sector. However, the pace of technology innovation continues to challenge those who want to capture the concept of an "ICT Sector" within one finite, all-inclusive description.

For the purpose of this strategy framework, the following Organisation for Economic Co-operation and Development (OECD) definition of the ICT sectorICT Sector was agreed upon:

"The industries that produce the products (goods and services) that support the electronic display, processing, storage, and transmission of information."

Developing a concise definition for the ICT Sector is considered an evolving process (see Appendix C for a complete definition of the ICT Sector). As the OECD grapples with this and potentially restructures the ICT definition, so will this framework need to re-evaluate the adoption of a new definition by the OECD.

The ICT Sector evolved and matured during the latter stages of the Industrial Age. It was only been recognised as a sector in its own right once the convergence of the Computing and Communications industries was generally acknowledgedbecame reality.

The major industries comprising the ICT Sector are generally acknowledged as including:

Manufacturing

• Computer Hardware; and
• Telecom Telecommunications Equipment.

Services

During the early stages of the development of the sector, the focus was typically on measuring and increasing the production of the individual industries in the sector.

In the Information Age, ICT as an enabler of overall socio-economic development is taking on becoming greater more importantce than the development of ICT along strictly sectoral lines. This transformation in the role of ICT in the economy is depicted in Figure 2.1.

The key elements of an Information Age model are:

Infrastructure: This is the communications, largely Internet based, underpinning of the Information Age. It is predicated on the notion that the communications network linking individuals, government and corporations is a commonly accessible shared resource managed for the benefit of all users. In order to seek clarity of definition of what is meant by Infrastructure, the OECD has been developing a definition, and indicators, based on the industries (manufacturing and services) formerly considered part of the ICT Sector. This common base of reference is intended to allow measurement of the production and use of ICT in a meaningful and consistent manner.

Content: This is the information that is published and disseminated on the infrastructure. This information was initially largely undifferentiated and disaggregated, thereby limiting its usefulness. It is the recognition of the importance of content that has led to the term Information Society as the next step in the progression and content aggregation has been proceeding quickly for the last several years. As bandwidth increases and technology evolves, the nature and the range of content is increasing have evolved and increased rapidly. The intersection with cultural, and other, industries has again created a need for clarity of definition and the OECD is in the process of defining a Content Sector.

Applications: Until now, applications have been little more than tools for manipulating available information. The real information age applications have not yet started to emerge, although they will inevitably result in the dramatic restructuring of Industrial Age industries, or "old economy" industries as they are often referred to. However, this area is where explosive growth is starting to occur, particularly with respect to e-business/e-government. It is these business-driven applications, and associated content, that are expected to provide wide-ranging and lasting socio-economic impact. The underpinning of the information age applications is the enabling environment of e-commerce. At this time, the OECD definition activities are focusing on the e-commerce application-enabling environment.

Figure 2.2 illustrates the relationship between infrastructure, content and applications as well as how this relationship is changing over time:

This provides the definitive underpinnings for the analysis of the sector and the development of the ICT Sector Development Framework.

The Global ICT environment

There are several key trends which capture the essence of the transformation ICT has made and is making around the world. The increased use of technology by businesses and individuals has driven many of these trends,. Fforcing developers to provide innovative applications and technology solutions to meet consumers increasing demands of consumers. Listed below are some of the key ICT trends.

• The Internet as the backbone of a knowledge-based economy and information society

The improvements in computing power have allowed for increased computing storage and capacity and paved the way for the development of a knowledge-based economy and information society. The Internet and the World Wide Web have assisted in this growth and have become the platform for new applications, including hardware, software and services in the areas of knowledge management and dissemination, communications, entertainment and the arts, science, medicine, government, education and electronic business. The proliferation of both business and home use of Internet-based applications has increased worldwide. The amount of traffic over the Internet is estimated to be doubling every 100 days. with tThe volume of data carried on the world’s telecommunications system having has overtaken the volume of voice by the end ofon the world’s telecommunications system1990s. The emergence of a knowledge-based economy and information society has prompted the development of the technology to support the growing demand for its use as an enabler for countries to improve economic conditions and job prosperity for its citizens.

• Growth in infrastructure and applications

Whereas the convergence of information technologies and communications drove early stage growth of the ICT Sector, now the synergistic development of infrastructure, content and applications will drive even more explosive growth (Figure 2-2). Increased bandwidth and improved connectivity make possible new and improved applications possible, which in turn stimulate the need for even more bandwidth and better connectivity, as well as content. The move of ICT from the back office into the front office, particularly e-business, has been a key driver of the demand for increased bandwidth and improved applications. The continual evolution in the technologies supporting voice, data and video, and growing demand for wireline and wireless technologies and services, support this trend. Developed countries need to reinvest in infrastructure to respond to this trend. Developing countries, while facing the challenges of providing basic infrastructure, have the advantage of being able to leapfrog older technologies and develop the modern infrastructure, applications and content of a knowledge-based society.

• Globalisation and deregulation

The globalisation trend has transformed the workforce and shifted business investment from bricks and mortar to ICT applications and infrastructure. The pervasive use of technology has provided the capability of turning local communities into global communities. In the business environment, production cycles have been shortened to gain the competitive advantage of being first to market. Market reach is no longer limited by geography. Globalisation has lead to the creation of vertically integrated organisations with distribution networks worldwide.

Governments around the world are attempting to take an active role in developing policies that promote the development of the ICT Sector. The most significant policy change has been the liberalisation of the telecommunications market. Sixty-nine countries, including South Africa, signed the World Trade Organisation basic telecommunications agreement to open up the world’s telecommunications market to competition. The agreement states the basic principles under which countries will open up their telecommunications market to deregulation.

• Business models in the private and public sectors are evolving

The emergence of the digital economy and the e-business revolution are redefining business models in the public and private sectors. The growth in Internet use and e-commerce applications has provided a whole new industry. The Telecommunications Services industry is undergoing a transformation as the volume of Internet traffic exceeds the volume of voice traffic. Service providers are trying to provide customers with multiple integrated services over a single connection. Pervasive use of computer technologies has increased demand for new products and applications and increased the demand for lower prices, ease of access and improved functioning and portability.

• ICT and Social Infrastructure

The ICT evolution has changed the nature and level of interaction between citizens and community development organisations, government and public institutions. Equitable and affordable access to ICTs has the capability of empowering citizens to share ideas about solving common problems and allow them to form new relationships for idea generation, artistic expression and enterprise development. It can also be used to improve the effectiveness of government programs and service delivery. 

Profile of the ICT Sector

Global ICT Market

The global ICT market is predicted forecast to be in excess of $US 2 trillion in 2001 (Figure 2.3), up from approximately $US 1.8 trillion in 1999. Of the five industries comprising the sector, Telecommunications Services is the largest, forecast at $US 858 billion in 2001. While smaller in size at $US 218 billion, Computer Software is growing the fastest with a 14.2% annual increase expected from 1999-2001 (Figure 2.5)..

Figure 2.3: Global ICT Market

- In terms of Market segment revenues, Telecommunications Service is the largest with an estimated $858 billion US$ for Y2001. (Figure 2.3)

Figure 2.4: Global Market Growth

- In terms of growth, the Global Software market is predicted to have the largest, increase expected from 1999-2001, followed by IT Professional Services with an annual increse of 10.1%

As indicated in Figure 2.5, the United States will continue to have the largest market share in 2001 with an estimated 34%, a slight decrease from 1999. This will be followed by Western Europe, which will hold its market share of 30% in 2001. The Rest of the World will see an increase in 2001 with an estimated 24% of the market, up from 23% in 1999.

Figure 2.5: Worldwide ICT Markets by Region

 

The South African Information and Communications Technology Sector

Currently, South Africa is the 20^th largest country market for ICT products and services, accounting for 0.6% of worldwide revenues. The ICT market in 2000 is estimated to be approximately R70 billion.

Market Segments Comparison for South Africa

Products

Computer Hardware

In South Africa, the revenues derived from sales of computer hardware were R12.8 billion for 1998. Over 95% of computer hardware revenues of distributors are from imported products and components. Growth rates for 1998 and 1999 were 13%, with 2000 and 2001 estimated at 12% and 13%, respectively. These growth rates exceed the global market growth rate for computer hardware of 6.9% in 1999-2001 by almost double.

Telecommunications Equipment

The South African Telecommunications Equipment Industry Sector is the largest in Africa, as measured by the number of fixed lines, number of cellular subscribers, data services users, financial revenues and investment, technological capability and local equipment design and manufacturing capabilities.

Services

IT Professional Services

The South African IT professional Professional services Services sector Sector Industry had estimated revenues of R2.3 billion in 1995 with ICT consulting making up 31.8%, custom application development 22.2%, implementation 20.3% and ICT education 14.6%. The IT Services market was R7.2 billion in 1998. Growth rates for 1998 and 1999 were 20% and 21%, respectively, with 2000 and 2001 estimated at 20% and 21% respectively. These growth rates also exceed the global market rate for 1999-2001 for IT Professional Services of 10.1% by approximately double.

Computer Software

Spending on Computer computer Software software for all sectors in 1998 was approximately R3.5 billion. The growth rates for Software Products in South Africa for 1998 was 18% and for 1999 was 21%. Estimates for 2000 and 2001 are 19% and 20% respectively. These growth rates exceed the global market rate for 1999-2000 for Computer Software of 14.2% by a substantial amount. Most development is limited to reworking or local integration of internationally designed packages. Typically, development changes reflect adaptations made to allow for unique legislative or operational needs perceived by local organisations. The Package Systems software industry is 100% imported, with about 88% of it coming from the United States. The Baseline Studies provide spending on revenues derived from sales of locally developed packaged software of R285 million in 1998, with consumer spending on local software at R20 million.

Telecommunications Services

South Africa is the telecommunications leader on the African continent, containing a third of all main lines and 85% of all cellular subscribers. Telecommunications Service revenues in 1998 were R35 billion. Telkom SA, the government-owned telecommunications company, had fixed assets and investments of approximately R22 billion in 1997/98, and is the 28^th largest Telecommunications operator in the world. Growth rates are for 1998 and 1999 were 19% and 20% respectively and are , in 2000 and 2001 estimated to be 20% and 21% respectively.

South Africa’s cellular market has grown significantly over the last decade, generating at least R10 billion, and has the largest Global System for Mobile Communications (GSM) market outside of Europe. It is the fourth fastest growing GSM market in the world. The two cellular licenses are owned by Vodacom and Mobile Telephony Networks (MTN).

South Africa’s use of the Internet has made it the 14^th largest Internet country market. ISP revenues are estimated to be R700 million in the year 2000.
 

Financial Sector

The Financial Services Sector in South Africa in 1996 was estimated to account for 50% of the installed national ICT base, and in 1997 for 20% of annual ICT spending, in part because of the disproportionate spending on large mainframes relative to other sectors. All major financial institutions operate nationally and have extensive networks of regional offices and associated electronic networks, despite 80% of the country’s economically active population remaining "unbanked". In this sector, there are 74 PCs per 100 employees. Several Most of the major institutions have Web pages and some are offering on-line banking services.

Retail Sector

In South Africa, the wholesale Wholesale and retail Retail sector Sector contributed 16% to GDP, and accounted for 18% of ICT revenues in 1997, with growth in ICT spending (12% in 1997). However this growth is estimated to decline until 2001. The major chain stores comprise about 70% of that market, and exploit ICT on a par with global best practices. There are 24 PCs per 100 employees in the sector. As the sector matures, there is expected to be a shift towards: market level logistics systems, such as industry-wide distribution systems; emphasis on global markets; outsourcing of more non-core processes such as finance and accounting; and growth in home shopping, based on the results of the Baseline Studies.

Manufacturing Sector

In 1997 this sector accounted for 40% of all computer users, covering a wide diversity of applications. ItT constitutes 20% of the total ICT market, making itIT the largest industry sector in 1996. The high growth in vendor revenues is due to the widespread adoption of client/server, Enterprise resource Resource Planning packages, most notably SAP R/3, as well as EDI. There are only 17 PCs per 100 sector employees. A survey of several hundred SA firms confirmed the concerns over the application of ICT in the sector. Products developed for sophisticated users in the developed world are being imported to South Africa with little or no economic benefits accruing to the country, due to the lack of appropriate skills transfer.

Government

In South Africa the public sector represents 51.4% of the GDP, and invested R2.9 billion in ICT in 1996. This represents 15% of total vendor revenues. In 1995 there were 7 PC’s per 100 employees in the public sector.

The government has a number of networks, but they are poorly linked among with one another and spread unevenly between departments, and between rural and urban areas. The use of the Information Management, Systems and Technology in the public service is currently attempting to reduce the fragmentation of the ICT structures in the government. In 1998 the Report of the Presidential Review Commission on the Reform and Transformation of the Public Service in South Africa published a report titled "Developing a Culture of Good Governance" which provided recommendations on the Information Management, Systems and Technology (IMST).

In January 1999 tThe State Information Technology Agency (SITA) was created to assist in addressing the government’s ICT problems. The purpose of SITA is to provide ICT-related services exclusively to the Public Service and ensure guaranteed performance levels. New management information systems are being utilised to supply strategic planning and policy decision making. IMIST is also testing the electronic delivery of certain public services through kiosks and other mechanisms.

Consumer Adoption

Internet

• During 1998 demand in South Africa for connectivity to the Internet grew even more rapidly than in the preceding four years. The number of dial-up subscriber accounts of all ISPs combined grew by more than 100%, reaching 370,000 by year-end 1998;
• The number of individual Internet users, including those who have access via corporate networks, reached nearly one million at the end of 1998 and is expected to reach 3.5 million by 2003;
• The percentage of households with Internet access if is forecasted to continue to grow through 2003. 1998: 4.1%, 1999: 6.0%, 2000: 7.4%, 2001: 8.2%, 2002: 9.2%;
• The Internet is expected to be a major catalyst for further growth in e-Commerce commerce in the years ahead. There is now a substantial installed base of devices and users accessing the Web, and in many areas there is an incentive for these users to transact on-line;
• There is also a growing local merchant presence on the Web;
• In 1998 there was a large investment on the part of major ICT and other industry players seeking to be facilitators of the future e-Commerce supply chain; and
• BMI-TechKnowledge expects that public access to the Internet will grow as a broader base of South Africans is exposed to Internet application, especially through the use of Public public information terminals and kiosks.

Communications

• There is great discrepancy among white and black South Africans with respect to access to communications;
• Overall only 32.2% of households have access to a fixed line and/or cellphone in their homes;
• Telephone lines per 100 people - 11.2 (1997);
• Rural telephone lines per 100 people - 2.2 (1997);
• Connected telephone lines - - 4.8 million; and
• Cellular subscribers - 2.5 million. 

ICT Innovation in South Africa

R&D expenditure in South Africa is approximately 0.8% of GDP, which is below most OECD countries, where ICT Sectors account for approximately 2.5-3%. Overall, research on computer sciences represented only about 2.3% of total R&D spending in 1993. The business sector had a greater involvement in funding computer science R&D, representing 63.4% of total funding in 1993. This suggests that ICT R&D is more geared to business applications than to exploratory basic research conducted at academic institutions. Business sector support for R&D is focused for the most part at the Telecommunications Service and Equipment industries – adapting technologies, particularly software, for local conditions. 

ICT Human Resources Situation in South Africa

The supply and potential shortage of ICT skills and the need for ICT workers within the ICT Sector as well as the ICT-enabled sectors, and the "brain drain", are three of the human resource issues being faced by South Africa and many other countries.

The "Brain Drain" refers to the migration of skilled workers to other countries for better wages, lower taxation, better working conditions, etc. Redressing Equity and Empowerment are also important Human Resource issues of special interest to South Africa.

Currently, South Africa is experiencing a high unemployment rate, and the labour market is finding it difficult to supply skilled ICT workers to meet the rising demand. The distribution of IT skills on a provincial basis illustrates a higher concentration of workers in Gauteng (65%) and the Western Cape (22%).

The following reasons for the skills shortage were provided in the Baseline Studies as to the reasons for the skills shortage:

• There is a lack of co-ordination between the education system and the labour market;;
• Demand for all IT professionals is outstripping supply; and
• Better opportunities in other countries..

The number of black companies is still relatively small, but growing. In 1999 there were about 125 black ICT companies, employing 750 people with revenues of approximately R1.5 billion.

Statistics measuring the number of women who work in ICT are unavailable, but the participants in the Women in ICT Workshop developed the following conclusions suggestions on gender issues in South Africa:

• The industry is dominated by white males with women earning less;
• Gender issues are obscured by general black affirmative action;
• There are few women in leadership positions;
• There are racial divisions with the emphasis on white women;
• There are not enough women graduates in ICT; and
• Rural women have little access to ICT. 

The Challenge of contributing to Sustainable Economic Development, Social Upliftment, and Empowerment

As indicated in the introduction, this framework is intended to address the development of an ICT Sector that contributes to sustainable economic development, social upliftment, and empowerment. While the purpose of the ICT sectorICT Sector Development Framework is not to solve the socio-economic issues facing South Africa, its development provides the capability to support government initiatives in this regard. The following provides a brief outline of the socio-economic situation and some of the challenges that must be faced in developing an ICT Sector Development Framework that contributes to sustainable economic development, social upliftment, and empowerment.

As indicated in the profile of the ICT supply sector, South Africa has a sophisticated supply capability and a modern ICT infrastructure. Furthermore, South Africa’s ICT Sector is quite capable of competing in international markets, as a number of South African firms are already doing. Because of past historical policiesthe evolving economy and policies, , the ICT sectorICT Sector and infrastructure are concentrated in and serve primarily urban areas. A large portion of the population in rural areas is excluded. As a consequence, a big portion of the historically disadvantaged population has had no meaningful involvement in the sector, neither as consumers of its products and services, nor as employees. Nonetheless, the current ICT supply sector and infrastructure provide an excellent base upon which to build a modern ICT sectorICT Sector that is capable of providing the ICT products and services that all South Africans will require, and that helps to bridge the digital divide that has developed.

Despite the "political miracle" of 1994, the country continues to be socially and economically divided. The country is burdened with the economic reality of having to redress the legacy of apartheid in terms of education, poverty alleviation, inequitable health care and burgeoning crime and violence. Although South Africa appears prosperous compared with other countries in the region, approximately 46% of the population lives on or below the subsistence level. The human development index (HDI) is 0.677, which ranks South Africa 94^th in the world. (Baseline Studies).

Based on 1996 Census data, the population of South Africa is estimated to be 40.6 million. Approximately 54% of the overall population lives in urban areas, with Gauteng and Western Cape predominantly urban while Northern Province, North West and Eastern Cape are predominantly non-urban. Approximately 58% of the population have access to electricity, 45% access to running water in their homes and 16% of the population over 15 years of age is illiterate (World Bank).

The incorporation of ICT into education is lacking in terms of inclusion into the current curriculum as well as access to computers and the Internet. The following summarises the current situation with regards to ICT and education:

• Approximately 50% of the country’s schools have electricity, and 75% have running water;
• Approximately 7.5% of South African schools have adequate telephone lines and, electricity; and computers to contemplate the use of ICT in schools;
• Over a third who obtained a Senior Certificate passed with physical Physical Science, and just over 10% passed with physical Physical science Science on the higher grade. (A mathematics and/or Physical Science pass on higher grade is usually the minimum requirement for a person who wants to obtain a university qualification in ICT);
• The vast majority of schools with computer facilities are urban based and predominantly white;1996 figures from the schools register of needs indicates that of 27,066 schools countrywide, 2,241 have computers totalling 34,843 between them. The vast majority of schools with computer facilities are urban based and predominantly white;;
• More than 90% of schools do not have access to computers;
• Most schools use ICT for administration management purposes, and not to support learning initiatives; and
• In only less than half of the secondary schools surveyed did learners spend more than three hours per week on computer learning skills.

The economic impact that HIV/AIDS will have on South Africa is yet to be fully determined. At the end of 1999, an estimated 4.2 million people, or just under 10% of the population, were the HIV-positive that leads to AIDS at the end of last year. This estimate was drawn from the results of the 10^th national antenatal survey, which indicated a national HIV prevalence antenatal rate of 22.4% for 1999, compared to 22.8 % for 1998.

HIV prevalence was slightly higher in the 30-34 year age group and in the 35-39 year age group. People in their 20s constituted more than half of the infected population. KwaZulu-Natal remains the province with the highest prevalence rate with 32.5% in both 1998 and 1999. Western Cape has the lowest level of infection, with 7.1% in 1999.

It is estimated that South Africa’s population growth will fall to 0.8% by 2005 and into will decline further thereafter. AIDS-related deaths will increase from the current 400,000 per year to between 800,000 to 1 million, with life expectancy decreasing from 68 to 48 years. The Actuarial Society of South Africa predicts that by 2005 about 4 million families will experience a 20% reduction in discretionary funding due to higher taxation to cover State medical spending and personal medical costs.

To date little research has been done on the economic impact the HIV/AIDS situation will have on companies given the high prevalence rate of HIV/AIDS among men and women in their 20s and 30s. The impact this will have on Human Resources and the availability of ICT skills in the country could be substantial.

Key Strengths, Issues and Opportunities for the South African ICT Sector

Presented below are the key strengths, key issues and opportunity areas to be addressed in the development of the ICT Sector Development Framework. These are summarised from the sources utilised to develop an understanding of the ICT Sector environment in South Africa, in particular from the Working Groups, Workshops, Executive Forums and the Baseline Studies. The issues were discussed and ratified by the four Working Groups established to assist with strategy development. In this case, further information on the issues, both in summary and discrete form, can be found in Appendix ED. The material below is segmented by the subject matter of the respective Working Groups.

Developing the ICT Sector (ICT Industry Working Group)

Key Strengths of the Sector

South Africa already has an established ICT Sector comprising:

• a small number of thriving indigenous companies, some of which have achieved multi-national status;
• several State Owned Enterprises (SOEs) that are major players in the ICT Sector (most notably Telkom SA);
• a growing base of ICT SMMEs; and
• a number of foreign-owned multinational enterprises (MNEs) that have established a presence and business relationships in South Africa.

In addition, several nascent ICT clusters have been established, particularly in Gauteng and Cape Town, that can be the focus of further growth for the sector. As indicated in the analysis of sector activity and associated revenues, the sector has a small but growing presence in local and export markets.

Key Issues

The sector issues can be organised around three themes: ICT Sector Capacity; The Sustaining Environment for Sector Growth; and Global Competitiveness.

In respect of sector capacity, the Working Group felt that the sector is currently fragmented and acting without national purpose. Credibility, coherence and convergence were considered necessary between all the involved parties and stakeholders, all of whom have substantial contributions to make. In this respect, the issue to be addressed is: How can widespread and long-term commitment to building sector capacity be achieved? Secondly, with an already well-established sector, as described above, how can that base be leveraged into substantial new growth? Third, how can widespread development of the sector throughout the country be achieved, particularly to improve rural and community participation in the sector?

The Working Group recognised the importance of creating a sustaining environment for sector growth and raised issues around areas of policy change, government support and the enabling infrastructure that will be required. The Working Group noted that the Telecommunications Act provides short-term mechanisms for addressing infrastructure challenges that the telecommunications industry faces, particularly the exclusivity that has been granted to Telkom SA until 2002. It was emphasised, however, that there is substantial entrepreneurial activity to help meet these challenges that can be unleashed by the establishment of an open, competitive environment.

The need to expand the market for the sector’s products and services was addressed. In this respect, the key consideration was how to increase South Africa’s penetration of global ICT markets. While realising the need to become a high value-added provider of ICT products and services, issues revolved around branding South Africa, being proactive in global markets, and gaining access to reliable and affordable information on market trends and opportunities.

Underlying all of these issues was the question of how the sector could contribute to sustainable economic development, social upliftment, and empowerment.

Key Opportunities

There are a number of key opportunities from the situation Situation analysis Analysis that South Africa can capitalise on to develop its ICT sectorICT Sector:

• Support and encourage the growth of the large indigenous companies, in return for retaining in South Africa their highest value-added activities, growing their South African operations and contributing to overall growth of the ICT Sector in the country.
• Accelerate growth of the base of ICT SMMEs and supporting their continued success.
• Encourage the SOEs that are current or potential major players in the ICT Sector, and the foreign-owned MNEs that have established a presence and business relationships in South Africa, to participate more integrally in the development of the ICT Sector.
• Focus on developing the nascent ICT clusters, particularly in Gauteng and Cape Town.
• Leverage South Africa’s strong local market for ICTs and its presence in the South African regional market into global markets, particularly the expanding developing country market.

Stimulating the Demand for ICT Products, Services and Applications (ICT Usage Working Group)

It was recognised in the design of this project that a powerful stimulus to sector development could be achieved through stimulation of the local market for ICT products, services and applications. Furthermore, such stimulation could have substantial socio-economic benefits to other sectors of South African society through the enabling impacts of ICT adoption, particularly new and innovative applications that lead the way towards realisation of an information society. Consequently, this approach has the potential for major contribution to sustainable economic development, social upliftment, and empowerment in both the ICT Sector and enabled sectors.

Key Strengths

South Africa has been a forerunner in the development of an information society strategy and the benefits of such a strategy are well understood by decision-makers. For an information society strategy to be effective, an active and demanding local market is required in which new information society products, services and applications can be devised, tested, and implemented. This would provide for the ICT Sector a local market base as well as the platform to develop products, services and applications for the export market.

Relative to the Information Age model described at the beginning of this section, infrastructure, content and applications are determining components. In this regard, South Africa has a well-developed core infrastructure linking the major centres. There is recognition that this infrastructure will need to be extended throughout the country and that an open, competitive environment can accelerate the more widespread deployment and growth of this infrastructure throughout the country. There are also strengths in content creation, but this is outside the purview of the ICT Sector Development Framework.

In respect of specific technologies that will support greater ICT adoption, there is widespread awareness and adoption of the Internet and extensive wireless usage. South Africa is also a leading user of smart cards. In terms of Internet applications, there is awareness of the importance of e-commerce and a focus on developing the framework for e-commerce activities. In this respect, there is a strong financial services sector that is a significant adopter of advanced ICT applications and could be a leading participant is in e-commerce applications. South Africa is also a world leader in development of community telecentres, which could be the basis for extending ICT adoption widely throughout the country.

Key Issues

The ICT usage issues can be organised around four themes: Local Market Development; Applications Development; Information Infrastructure Development; and Achieving Ubiquity.

In respect of local market development, the key issue identified by the Working Group related to increasing the demand of the local market for ICT products, services and applications. This included how to understand the local market, how to create greater awareness of the potential of ICTs, how to assist in moving disadvantaged areas in South Africa and Africa from a survival economy to a knowledge economy, and the need to identify niche markets that can be exploited. The Working Group also noted the need to address the impacts of introducing ICTs into industries, particularly to ensure that the negative impacts are minimised and positive impacts are maximised and optimised.

In respect of applications development, the key issue was the need to identify short run and long run applications development opportunities for South Africa that would meet local requirements. Related to this was achieving excellence in the development of ICT applications for both local and global markets as well as taking into account the future drivers for commercial and social responsibility.

Recognising that current information infrastructure serves mainly the core areas of the country, the a key issue identified by the Working Group related to how to achieve rapid and widespread deployment of ICT infrastructure and technologies throughout the country. Lack of infrastructure and affordability were viewed as inhibiting access uptake in disadvantaged areas.

A great deal of concern was expressed around the area of achieving ubiquity – bringing the benefits of ICT development and adoption to all South Africans. In this respect key issues related to generating widespread commitment to ICT-enabled community socio-economic development and achieving equitable access and affordability of ICT applications (e.g. cost of technology, language, literacy), and addressing the needs of disadvantaged groups.

Key Opportunities

• Accelerate, in a major way, the development of infrastructure in the country as a way to stimulate ICT demand.
• Move aggressively towards an open, competitive environment for accelerating the more widespread deployment and growth of the infrastructure throughout the country.
• Focus on accelerating the adoption of specific ICTs in which South Africa has indigenous strengths, (e.g.: Internet; wireless communications; and smart cards).
• Build on the existing e-commerce momentum to accelerate demand for ICTs.
• Adopt incentives to encourage the financial Financial services Services sector Sector to take a leadership role in promoting the significant adoption of advanced ICT applications in other sectors of the economy.
• Exploit South Africa’s reputation as a world leader in the development of community telecentres.

Human Resources Development (Human Resources Working Group)

Human resources development is the most critical area that South Africa faces in the development of its ICT Sector and in stimulating ICT usage in other sectors of South African society. In one respect, South Africa is no different from other countries that have to deal with the global shortage of ICT workers and, in particular, the global migration of skilled workers. South Africa, however, faces the more profound challenge of educating, training and integrating a large proportion of its population who were previously denied the opportunity to move into the emerging information society.

Key Strengths

While wide disparity exists, South Africa does have a good core education and training system and infrastructure upon which to build. This includes its schools, technikons and universities and a growing number of private training facilities. The challenge will be to extend this broadly throughout the country. There is also within government the policy environment and will to tackle this challenge. South Africa also has a strong labour movement which understands the importance of human resources development for the country and, in particular, the critical importance of ICT human resources development.

Key Issues

The ICT human resources development issues can be organised around three themes: Developing the Future Skills Base; Solving Employment/Workforce Issues; and Countering the Brain Drain.

To participate in the ICT Sector, South Africa must ensure the development of skills that are on a par with or exceed world standards. This will mean improvement to its existing educational and training capabilities as well as preparing its population to participate broadly in the information society and to be productive members of the ICT Sector. The issue addressed by the Human Resources Working Group was what measures must South Africa adopt to ensure the availability of skilled workers to fill future ICT sectorICT Sector and ICT-enabled jobs. ? What are the skill sets that will be needed? How can the lack of ICT literacy among much of the population be addressed? How can the delivery of ICT education and training be improved? And, realising that this is a broad societal issue, how can stakeholders be encouraged to co-operate to address the skills gap in ICT?

The Working Group identified a number of employment/workforce issues that will need to be addressed. The Working Group was of the opinion that the framework should be responsive to the loss of jobs in wider society resulting from the broad introduction of ICTs as contemplated by the ICT Usage Working Group. In this respect the issue was what human resources development measures must be undertaken to allow for a constructive transition of employees retrenched as a result of ICT adoption? A number of policy issues were identified, such as recruitment of specialist international staff and solving structural problems that contribute to low employment growth. A critical skills availability issue was also the development of measures to counter the impact of HIV/AIDS on the ICT workforce.

In terms of the Brain Drain, there is a need to counter the outflow of skilled ICT workers from South Africa. In this respect, there is a need for a broad understanding of the factors relating to the Brain Drain, particularly, if extent and the factors and severity thereof, motivating people to leave South Africa.

Key Opportunities

• While South Africa must make a long-term commitment to developing its ICT human resources capabilities, there are immediate opportunities to begin the process of human resources development:
• Build on the existing education and training system to rapidly develop the required ICT-skilled workforce.
• Work with the education and training institutions to more closely link outputs of these institutions to the ICT needs of the country, particularly the needs of business and government.
• Engage the labour movement in proactive development of the ICT Sector in a broad and substantive manner.

Stimulating ICT Innovation (Innovation Working Group)

It was recognised early in the framework development process that innovation is the lifeblood of developing a sustainable approach to ICT development in South Africa, whether related to the development of products and services by the ICT Sector or the adoption of ICTs in other sectors of the economy. The Innovation Working Group stated the need to build a culture of innovation, and to create the need for innovation to occur. There was also the realisation that innovation must be translated into commercial success for it to have the desired impact in South Africa.

Key Strengths

South Africa already has a strong base upon which to build. As exemplified by the Working Group, there is recognition of the importance of innovation, particularly in the applications area. The importance of understanding the areas of innovation on which the country can focus is also recognised. In this respect, the National Research & Technology Foresight Project has set out a longer-term vision and explored areas of technology for future action. Whereas overall commitment to R&D is weak, there are pockets of capabilities in selected universities and research institutions to undertake the early-stage R&D that the country will need. In particular, the Centre for Scientific and Industrial Research (CSIR) has the resources and experience to take a lead position in ICT innovation in South Africa.

Key Issues

The innovation issues were organised around the following four themes: Establishing an ICT Innovation Culture; Stimulating ICT Research and Development; Facilitating ICT Technology Transfer; and Protecting Intellectual Property.

Recognising its importance, the Working Group debated issues pertaining to building a culture of innovation throughout the country. The central issue was engendering a broad understanding of the innovation process and obtaining commitment from and establishing links among key stakeholders, particularly government and the private sector. The Working Group noted that the culture (internal) and systems are not optimal to allow and encourage universities and technikons to contribute fully to innovation in ICT.

Innovation was viewed as one of the tools to allow ICTs to enable and empower. The associated issue was how to employ innovation to leapfrog South Africa’s disadvantaged communities into a more developed situation – a balance between market pull and technology/applications push. In this respect, the Working Group stated that innovation should not ignore market opportunities in developing markets such as the African market; South Africa should translate "obligations" into opportunities. There was also a need expressed to address the social factors surrounding ICT innovation, for example how to foster innovation in areas other than technology innovation (spin-offs and ripple effects, affordability and accessibility).

As a key component of innovation, the Working Group identified the need for a much stronger commitment to ICT R&D. The key issue was how to stimulate the higher levels of ICT R&D that will be required to implement the framework. Specifically, this included the need for greater investment by the private sector and greater commitment by government.

The Working Group also saw the need to accelerate the flow of technology from research to commercialisation. In this respect South Africa lacks a strong entrepreneurial base in the ICT Sector and there are significant constraints in the venture capital market. Funding is limited, investors are cautious and there is a general lack of understanding of ICTs and the new economy. In addition, there is also a need to understand risk management with regard to the various aspects of the innovation chain, particularly commercialisation.

Within the new environment, particularly its globally competitive nature, the Working Group stated a need for South Africa to protect its intellectual property rights to a far greater extent than previously. In particular there will be a need for more government-to-government involvement. Also, a greater awareness of intellectual property issues is necessary, including, for example, the incorporation of intellectual property in education. The Working Group stated the need for South Africa to play a leadership role in defining developing world intellectual property rights, specifically community intellectual property rights.

Key Opportunities

• Build on the National Research and Technology Foresight Project initiative to develop an innovation culture, largely focused on the Foresight priority sectors.
• Build on the substantial R&D capabilities of the CSIR and its commitment to fostering innovation.