South African ICT Sector Development Framework

Chapter 4
ICT Sector Development

Goal 1: Robust, growing and sustainable South African ICT Sector, with equity

Goal 1 relates to the direct development of the ICT Sector. The intent of Goal 1 is to create a cohesive, clearly delineated and vibrant ICT sectorICT Sector with strong leadership and commitment from all participants and stakeholders. The sector is expected to substantially outpace the South African economy as a whole and be comparable in growth with the ICT Sectors in more advanced information economies. Sustainability of the sector will be achieved through continuing profitability, global competitiveness and increased participation by disadvantaged individuals. In addition, the framework is intended to be adaptable to changing social, economic and technological circumstances.

Figure 4.1 (The ICT Sector View) presents a conceptual view of the ICT sectorICT Sector that was used to delineate objectives, strategies and actions. It includes a representation of the sector plus the sector infrastructure elements that support the sector and the areas of policy and government program support that comprise the broad environment in which the sector operates. The model of the ICT Sector presented in Figure 4.1 is consistent with the definition of the sector presented in Chapter 2. It includes the organisations that are classified by the various standard industry classification codes from that definition. Defining the sector in this manner permits direct attribution of the organisations within this definition to this objective, including the tracking of results.

This chapter addresses the strategies and actions required to achieve Goal 1:

• develop the capacity to achieve sector growth, including developing and strengthening the linkages represented;
• influence change in areas of policy and program support to improve the operating environment; and
• strengthen the support infrastructure upon which the sector relies.

While presenting the major sector components in Figure 4.1 to illustrate the organisational grouping involved, the approach, in general, is to develop strategies and action plans that apply broadly across the sector. The exception to this approach is a particular focus on SMMEs in accelerating entry into the sector. It is felt in this respect that SMMEs hold significant potential for growth within the sector and for, in particular, contributing most substantially to sustainable economic development, social upliftment, and empowerment.

Figure 4.1: The ICT Sector View

The four objectives supporting this goal are presented in Figure 4.2 below. Also shown is how these objectives individually address the components depicted in Figure 4.1.

Figure 4.2: The Objectives for ICT Sector Development

Each of these objectives is presented below, and contains the strategies and associated actions needed to achieve the objectives.

Objective 1.1: Build local Local ICT Sector capacity capacity

This objective relates directly to the goal of creating a robust, growing and sustainable South Africa ICT sector, with equity. This objective seeks to build ICT Sector capacity, unique to South Africa, that leads the world in supporting sustainable economic growth, social upliftment and empowerment. The strategies and actions to achieve this objective deals with the sector structures and processes to be instituted that will enable the sector to achieve the objectives of increasing sector revenues, increasing the sector’s contribution to GDP, increasing sector exports, increasing employment in the sector, and maintaining or increasing sector profitability. It deals with developing the four major types of organisations depicted in the centre oval in Figure 4.1, and strengthening the linkages between these organisations. Special emphasis is placed on creating and supporting new entrants in the ICT Sector, particularly SMMEs.

Strategy 1.1.1: Sustain Action Through Leadership and Inclusivity

This strategy deals with the establishment of the governance structure that will successfully take the strategy into implementation. In particular, it is intended to provide the organisational framework for the articulation of a national vision, for leadership in executing the strategy and for the participation of all stakeholders. A key element of this strategy is the successful transition of the processes and structures for the development of the strategy, more particularly the Project Office, but also including the ancillary structure such as the Stakeholder Groups, Strategy Working Groups and Forums, to the permanent processes and structures that will assist with implementation of the strategy and ensure sustainability after completion of the SAITIS project.

In the formation of this organisational approach it is important that there be:

• A clear mandate to act with national purpose;
• Concurrence on vision, goals and objectives;
• Committed and involved leadership;
• Inclusivity of all stakeholders; and
• Commitment to economic growth, social upliftment and empowerment.

The actions for this strategy are summarised in Figure 4.3 overleaf.

Figure 4.3: Actions relating to Sustaining Action Through Leadership and Inclusivity

Action(s):

• The set of strategies embodied in this document are national in nature, and must be seen to be representative of all stakeholders, i.e. with no affiliation to any one particular stakeholder group. This means a partnership is required. This partnership will comprise stakeholders from industry, government, labour, civil society, and academia, embodied in an ICT Sector Partnership under the auspices of the President’s Office. At a minimum of at least once per year, the Partnership will report to government and stakeholders on the current state of achievement of the goals and objectives of the strategy.
   
• Supporting the Partnership, an Implementation Entity will be formed. The implementation role, as directed by the set of strategies will be under the guidance of the Partnership. Implementation will be funded by cash and in-kind contributions from stakeholders, managed by the Implementation Entity (including program funds from government).

Strategy 1.1.2: Establish a Framework for a Sustainable ICT Sector

This strategy deals with the actions required to develop a sustainable South African ICT Sector. It is based on an approach that combines broad sectoral development, as indicated in Figure 4.1, with the development of critical-mass geographical clusters of companies, supported by local infrastructure developed on a local basis.

The model is characterised as:

• Supportive intervention through appropriate government policies, programs and incentives (i.e. supportive rather than prescriptive intervention).
• Complementary development of the geographical clusters model, of ICT activity particularly its decentralised decision-making and delivery aspects, spread throughout the country.

The actions for this strategy are summarised in Figure 4.4 below.

Figure 4.4: Actions relating to Establishing a Framework for a Sustainable ICT Sector

Action(s):

• The ICT Sector Partnership and its Implementation Entity will provide leadership in dealing with issues pertaining to the development of the policy/support environment and sector infrastructure that affects the sector. This will take the form of developing the capability to identify issues and proposing actions for their resolution.
   
• The ICT Sector Partnership and its Implementation Entity will foster the development of ICT cluster activities throughout the country. ICT clusters have been identified in Gauteng and Cape Town. These will be further strengthened. In addition, the creation and development of "satellite" ICT Sector clusters, is needed throughout South Africa, the focusing being on the development of ICT applications, and assisted by the main ICT Sector clusters, will be supported. The satellite clusters would be supported to develop ICT Sector capabilities over time, while new satellite clusters are developed.

Strategy 1.1.3: Foster ICT Sector Linkages

As indicated in the model of the sector above (Figure 4.1), it is necessary to build and/or strengthen linkages among sector participants. This can assist in establishing the credibility, coherence and convergence between all the involved parties that the Industry Working Group sought to achieve;, enabling companies in the sector to expand the range of successful business activities.

The following types of empowerment intra-sector linkages are possible:

• Supplier development linkages between the larger companies and SMMEs and disadvantaged individuals (to supplement various components of the larger company’s value chain by access to specialised capabilities). A key aspect of developing a stable and growing ICT Sector is the establishment of supplier linkages between the larger companies and the SMMEs and disadvantaged individuals.
• Ownership/investment/mentoring linkages between large companies and new entrant SMMEs.
• Outsourcing arrangements of non-core functions of larger companies to other companies in the sector.
• Distributor arrangements between MNEs and SMMEs.
• Partnerships and alliances, especially between local companies and MNEs.

The actions required to support this strategy are summarised in Figure 4.5 below.

Figure 4.5: Actions relating to Fostering ICT Sector Linkages

Action(s):

• Develop a funded supplier development program that provides assistance to suppliers to undertake an improvement program in pursuit of business opportunities with a sponsoring buyer. Such a program would also include networking events to bring together participating buyers and pre-screened, invited suppliers.
• Provide support for a sector organisation, such as an association, to host sector events, the purpose of which would be to exchange information on technical, market, management, human resources and other issues. The sector organisation would also host educational functions to raise awareness of the potential of the forms of linkages outlined above.
• Create a forum, comprising the CEOs of the major business stakeholders in the ICT Sector. The Forum would meet periodically to discuss business issues and opportunities as well as ideas to promote the ICT Sector.

Strategy 1.1.4: Accelerate Successful Entry

Accelerating new entry into the sector and improving the success rate of new entrants are important in achieving the growth objectives of the strategy. The promotion and support of new entrepreneurial entrants will provide a major impetus for increased employment opportunities within the ICT Sector.

The actions supporting this strategy are summarised in Figure 4.6 below.

• Foster incubator/entrepreneur centres in research facilities and on university and college/technikon campuses across South Africa, particularly outside of major metropolitan areas, to provide a full range of scientific, technological and management services to small knowledge-intensive ICT start-up firms, to foster early-stage entry and growth.
• Increase venture capital support for start-up companies., These companies often experiencing difficulties, using the conventional banking system, in acquiring the necessary funds for product company development.
• Foster increased mentorship support to start-up companies. Many start-up companies lack the business skills necessary skills to develop and grow the organisation. Mentorship support needs to be broadened to start-up companies. This can be achieved through support from, for example, larger companies.
• Simplify the registration and ongoing reporting requirements for start-up companies (e.g. Web-based registration and reporting). Start-up companies find the maze of registration and reporting legalities tedious and time consuming at a time when they are attending to developing the business.
• Identify and encourage innovative uses of the Internet to support start-up companies (e.g. virtual incubator). The Internet is a tool of growing importance to business, and a tool that start-up companies can employ to assist them in running their businesses.

Objective 1.2: Establish the Enabling Policy/Support Environment that makes South Africa an Attractive Place for ICT Development

The intent of this Objective is to engage government in a comprehensive and systematic way to create the policy and program environment in South Africa that will permit the ICT Sector to take full advantage of the opportunities possible with evolving technologies and markets.

Existing policies and programs have been arrived at after much public consultation and debate, and taking into account factors beyond the scope of this strategy development process. Thus the approach proposed is one of priority, with measured consideration of policy and program options, taking into account the concerns of the ICT Sector.

As indicated in Figure 4.1, there are a number of areas where government action is required, namely:

• Electronic commerce (to establish the policies and legal framework for secure electronic commerce);
• Telecommunications policy (to create a more open and competitive telecommunications sector);
• Labour market (to address the need for accurate and timely labour market information);
• Education and training (to address the need for skilled workers and to ensure broad access to education and training opportunities);
• Legal framework (to ensure that rights and freedoms are respected, e.g. intellectual property rights, and that international agreements are adhered to);
• International trade (to address the implementation of international agreements such as the World Trade Organisation agreement on trade in basic telecommunications, foreign investment rules, etc.);
• Taxation (taxation measures to stimulate investment and growth in the sector);
• Immigration policy (to offset the "brain drain" and the lack of skilled personnel in key occupational categories);
• Equity (to ensure that social upliftment and empowerment are achieved, to address issues of universal access and affordability);
• Government support programs (to develop and target government support programs to areas of sector need);
• Government procurement (to use government procurement as a lever to meet sector goals and objectives).

Strategy 1.2.1: Create Dynamic Policies and Programs for the ICT Sector

There are many government policies and programs operating within the South African business environment, several of which have been designed to assist specific sectors, such as the manufacturing sector. In the transformation from the industrial paradigm to the information paradigm, it is necessary to revisit these policies and programs, with specific attention to transforming them to better support the ICT Sector. The following action (Figure 4.) will strive toward creating dynamic policies and programs for the ICT Sector. This action should be undertaken as soon as possible.

The actions supporting this strategy are summarised in Figure 4.7 below.

Action(s):

The ICT Sector Partnership will lead a major examination of the policy and program supports needs of South Africa’s ICT Sector. The purpose of this will be to recommend the alignment of existing policies and programs, or and the creation of new policies and programs, to support the achievement of the goals and objectives of the strategy.

The Partnership will focus initial efforts on areas that will have the most immediate positive impacts on the sector, such as telecommunications policy, taxation, electronic commerce and government programs; leaving other areas for subsequent consideration. The Commission Partnership should will report to government within one year on its recommendations and may report on priority areas within a shorter period.

The ICT Sector Partnership should will establish the capability within its Implementation Entity to track and assess the impacts of existing policies and programs on the achievement of the goals and objectives of the strategy.

Objective 1.3: Build a World-Class ICT Sector Support Infrastructure

In order for local organisations to compete globally on a more equal basis, it is necessary that South Africa build a world-class ICT Sector support infrastructure.

This will allow South African ICT Sector organisations to share information more easily, thereby providing for more effective growth within the ICT Sector.

Figure 4.1 above presented the key elements of the support infrastructure, identified from international best practices, required to develop the ICT sector.

In developing an approach for building infrastructure, it is necessary to take into account the existence of an already well developed infrastructure in the larger urban areas versus the general lack of such elsewhere, particularly in smaller communities and rural areas, and especially the disadvantaged communities. In respect of the smaller communities and rural areas, the support infrastructure envisaged here also extends to stimulating the demand for ICTs in other sectors of the economy.

The key elements of sector infrastructure from Figure 4.1 are:

• Structures and processes to provide leadership and foster champions;
• Information networks for information and knowledge sharing;
• ICT innovation support;
• Establishing partnerships to focus resources;
• Support for entrepreneurship;
• Financing sector development;
• Developing the physical infrastructure required to support the sector;
• Market development; and
• Skilled personnel to work within the sector.

Specific strategies are outlined below for developing the support infrastructure. Two of these infrastructure elements are of priority; namely, ICT Innovation and Skilled Personnel, and are treated at the Goal and Objective levels, respectively, and are described later.

Establishing partnerships occurs throughout the document in sector development, in stimulating ICT usage, in human resources development, and in fostering innovation, hence there is no need for specific treatment here. The responsibility for the development of physical infrastructure, particularly related to cluster development and involving such areas as electricity, transportation, etc, are external to the sector. The importance of such infrastructure is referenced throughout the document, but no specific actions are outlined.

It is expected that the ICT Sector Partnership will continue to emphasise the importance of such infrastructure in supporting the development of the sector, particularly in cluster development. One related area of physical infrastructure that is treated directly at the objective level is information infrastructure (Chapter 5 – Stimulate ICT Usage). While the sector is the provider of such infrastructure, it is also a user.

This perspective is particularly important in relation to developing the sector in areas of the country that have inadequate access to information infrastructure.

Strategy 1.3.1: Provide Leadership and Fostering Champions

This strategy is complementary to the Strategy 1.1.1: Sustain Action Through Leadership and Inclusivity in that it extends the processes of providing leadership and fostering champions widely throughout the country. The action includes strategy contemplates involving representation of or consultation with stakeholders to ensure that leaders and champions are identified and engaged throughout stakeholder groups, particularly in building the sector support infrastructure.

This includes, but is not limited to, all levels of government, urban as well as rural areas and communities, and disadvantaged peoples, communities and groups. The intention is to not only build leadership and foster champions from an overall sector point of view, but also relative to every aspect of the sector and its support infrastructure throughout the country.

These actions are summarised in Figure 4.8 below.

Figure 4.8: Actions relating to Providing Leadership and Fostering Champions

Action(s):

• Under the leadership of the ICT Sector Patnership, establish mechanisms need to be established to identify, encourage and support leaders and champions in the development of the ICT Sector. This can include mechanisms to involve industry associations, local governments, universities and college/technikons, stakeholder groups, and many more. Investigate the development of complementary ICT Sector Commissions Partnership at the provincial level to foster provincial/local ICT Sector growth.

Strategy 1.3.2: Develop Information Networks

The purpose of this initiative is to encourage, facilitate and establish the mechanisms for information and knowledge sharing. It is recognised that such sharing should not compromise the competitive positioning of companies that are active in the sector. For this reason, the focus is on the sharing of information and knowledge that is pre-competitive in nature or generally in the public domain. This initiative would be established on a complementary sector-wide and regional basis.

On a sector-wide basis, ICT associations would could provide the institutional structure for delivery of this initiative. On a regional basis other organisations, such as local economic offices, could be engaged.

These actions supporting this strategy are summarised in Figure 4.9 below.

Figure 4.9: Actions relating to Developing Information Networks

Action(s):

• Establish an ICT Sector Portal, for information and knowledge sharing pertaining to the development of the ICT Sector. Among other things, the portal could include information on sector financing, government support programs and incentives, sector performance, sector successes, lessons learned, etc.
• Establish and encourage networking events that permit face-to-face discussion and sharing of information and knowledge. These networking events can could take the form of ICT Sector focussed exhibitions, conferences and workshops.
• Establish a stakeholder group or groups to foster collaborative projects and networking events, e.g. projects such as building a broadband community network.

Strategy 1.3.3: Increase the Financing of Sector Development

Financing ICT Sector development is a major concern, particularly early-stage financing of "high-risk" start-ups. Among the many issues raised in the strategy development process were: inadequate information on available, accessible financing; lack of the local support infrastructure to facilitate the partnering of capital lenders/investors and borrowers/firms; inadequate information on government incentives and support programs; and inadequate incentives for foreign investment.

The actions presented in Figure 4.10 will help to promote the financing of sector development.

Strategy 1.4.1: Communicate Market Trends and Opportunities

Businesses requires reliable data that will enable it them to measure its their performance in relation to market demand and market growth, as well as to assess new market opportunities and track the trends in technology. This will require the establishment of the capacity to track trends and determine opportunities on an ongoing basis. It will also require the development of mechanisms for dissemination of this information throughout South Africa. One such mechanism could be the ICT Portal.

The action that will promote this strategy is summarised in Figure 4.11 below.

Figure 4.11: Actions relating to Communicating Market Trends and Opportunities

Action(s):

• Create awareness of market trends and opportunities so that businesses become more aware of their own achievements in relation to other players in the industry, and across the world.

Strategy 1.4.2: Market South Africa’s ICT Products and Services

In order to further further stimulate the growth of the ICT Sector, it is imperative that South Africa achieves a greater awareness in foreign markets of its product and service offerings, which in turn will stimulate exports. In particular, South Africa should strive to market its innovative capabilities into Africa and the rest of the world.

The action that will promote this strategy is summarised in Figure 4.12 below.

Action(s):

• Actively market South Africa’s ICT products and services to the African and global markets. A Team South Africa approach is recommended that involves government and the private sector, supplemented by the marketing efforts of individual companies. Brand South Africa globally as a country of ICT innovation; promote the brand image widely so as to attract firms, technology, capital and talented people. Other elements could include attendance at international ICT conferences and events (government as well as individual companies), provision of marketing support services and assistance by government.