Digital Africa StudySouth Africa

South African ICT capabilities are acceptable (especially for Africa) but not advancedSource: World economic forum – Global IT report 2014

Commentary:• South African ICT infrastructure is acceptable

but not advanced• SA Broadband is both limited and expensive• While SA business usage is moderate, both

individual and government usage is low• The Government of South Africa is not using

technology extensively to make social or economic impacts

Political and regulatory environment

Business and innovation environment

Infrastructure and digital content

Affordability

Skills

Individual usage

Business usage

Government usage

Economic impacts

Social impacts

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6

7

Finland

South Africa

Affordability FinlandSouth Africa

Mobile cellular tarrifs PPP $/min 0.07 0.51

Fixed broadband internet tariffs PPP $/month 28.94 37.25

Internet & telephony competition (index) 2.00 1.07

Internet & telephony competition (World rank / 148) 1 125

Public Services still with paper documents and SMS …But Telecom earnings are changing

6/9/2015 © Finpro 3

The ICT market size in South Africa is estimated at R 190 billion (€ 14.1 billion)

The telecommunications businesses are by far the largest share – due to customer subscriptions

The South African ICT market is dominantly driven by telecommunications expenditure – approximately 80% of the ICT budgets are used telecommunication.

Large telecommunication companies are moving from traditional communication to providing ICT services themselves.

Vodacom

MTN

Cell CNeotel

Other BytesEOH

BCXDD

Datacentrix

T Systems

Gijima

Telkom

Major Telecommunications Companies in South Africa

• Telkom is the major fixed line provider• Vodacom is the largest mobile service provider in B to B

and B to C• Vodacom is anticipated to acquire Neotel in the near future, giving

them ‘last-mile’ capabilities

• MTN is a larger mobile service provider than Vodacom, but their South African revenues are significantly smaller

• Cell C is a private company • Discussions about Cell C’s financial challenges and their future in

the market

South African Telecoms

Vodacom

TelkomMTN

Neotel Cell C

32 483

58 801

38 922

3 900 7 500

In South African Rands 100 R ~ 7,77 EUR or 1 Eur ~ 13,1 R (25.5.2015)

-

20 000

40 000

60 000

80 000

1 2 3 4 5 6 7

Revenue growth of the big three telecoms companies

Telkom Vodacom MTN2008 2009 2010 2011 2012 2013 2014

-

50 000

100 000

150 000

200 000

1 2 3 4 5 6 7

International Revenue - Vodacom and MTN

Vodacom MTN

IT Service provider market in South Africa

1 Eur ~ 13,1 Rands(25.5.2015)

6 512 300

8 761 000

2 279 512

6 124 556

7 220 000

1 519 000 2 000 000

Share of market – Revenues in Rands

Bytes

Business Connexion BCX

Dimension Data

Datacentrix

EOH

Gijima T-Systems

Seven largest represent about € 2,564 billion revenue.

Average revenue growth for the major IT suppliers is 12%.

Average gross profit is 6.55%(Excluding the loss-making company)

Also the usual international companies are represented in the market

Approximately over 2000 medium to small

niche ICT service providers

IT service providers: Entry points to telecom, financial and cybersecurity market in South Africa

• As the South African buying culture tends to be exclusive and trust is major issue among corporate buyers

• As buying is steered by rigorous and long lasting Request For Proposal (RFP) processes and guided by personal relationships

• As Broad Based Black Economic Empowerment B-BBEE levels are relevant issue in public sector

Existing networks by ICT service providers could be good entry point

• The ICT market is relatively decentralized and competitive with many potential options to start to co-operate with the seven major IT service players, who operate in the market with a significant grip on the clients in the focus markets like financial, telco and cybersecurity

• Partnering model with added value service and product providers is operating model for ICT service providers – although global partners prevail, local added value providers have remarkable advances and opportunities

What Telcos want to develop?

Summary: Telco market and investment areas

Telecom

• Biggest telcos are moving into IT service space

• All three major telco’s (MTN, Telkom, Vodacom) see huge opportunities in

Africa, South Africa considered as competitive and mature market

• New services are considered as source new revenue in digitalization and

IT service space

What Telcos want to develop?

Summary: Telco market and investment areas

Telecom

• Biggest telcos are moving into IT service space

• All three major telco’s (MTN, Telkom, Vodacom) see huge opportunities in

Africa, South Africa considered as competitive and mature market

• New services are considered as source new revenue in digitalization and

IT service space

”IT SERVICE

COMPETENCIES IN ALL

IT DOMAINS””EVERYTHING

RELATED TO

DATA

CLASSIFICATION”

”HELP CUSTOMERS TO

DEVELOP NEW

NETWORKS”

”VERTICAL EXPERTISE

NETWORK SECURITY ”

”HELPING OUR

CUSTOMERS TO

DEVELOP THEIR

DIGITALIZATION

ROADMAPS ””TO SECURE

CUSTOMER DATA

MANAGEMENT”

”IT SECURITY CAPABILITIES

IN DISASTER RECOVERY,

BUSINESS CONTINUITY

MANAGEMENT”

Opportunities

Two type of opportunity exist – servicing the Telecommunications Companies as a provider in corporate and ICT servicesThere are many small ISP (Internet Service Providers) and web-based companies, which use the networks and infrastructures provided by the big Telecoms companies. Finnish companies wishing to use telecommunications networks will find opportunitiesTelkom, MTN and Vodacom have all stated a strategy of expanding into IT domains. At the moment they provide networks, hosting, and ‘white label’ IT products. There is an opportunity to offer them partnerships in all IT services domainsThere is an opportunity to provide secure industry specific virtual networks (e.g. Medical)Many telecom companies have clear Africa strategy that makes it possible to expand into other areas in Africa for e.g. Finnish ICT companies.Network security has been named as one of the development areas among telcosfrom offering perspective.Companies are creating their digital strategies which opens up opportunities.Companies, which can create new business for Telcos and even offer new financing models for that business, have opportunities.

SWOT: South African ICT market - focus on telecommunications

South Africa has a mature financial market

0 5 10 15 20 25 30 35 40

AVAILABILITY OF FINANCIAL SERVICES

AFFORDABILITY OF FINANCIAL SERVICES

FINANCING THROUGH LOCAL EQUITY MARKET

SOUNDNESS OF BANKS

REGULATION OF SECURITIES EXCHANGES

10

3

21

5

2

39

21

3

6

1

Financial market development

Finland South Africa

• South Africa has an excellent banking system – but it’s not cheap for clients

Source: World Economic Forum, Global Competitiveness

Report 2014/15 Scale out of 144: 1=best, 144 = worst

South Africa has four major banks

• All together 13 local South African banks• South African banks are growing their networks to Africa

• E.g. Standard Bank operates in 19 African countries

South Africa has over forty insurance companies

19,49,6

6,2

20,98

59,1

56,2

Old Mutual

Momentum SantamOutsurance

Hollard

DiscoveryThese include four major banks

Revenue of major insurance companies in Billion Rands

Insurances and Healthy life style

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What financial organisations want

to develop?

Summary: Financial sector market and investmentareas

Financial

sector

• Mature and sophisticated market with lot of innovation

• All major financial institutions building Africa presence and investing

heavily in other parts of Africa and Middle East

• Financial institutions building their mobile and digitalization strategies as

part of internet and mobile banking

• Many institutions use old technologies, looking for leapfrog technologies

What financial organisations want

to develop?

Summary: Financial sector market and investmentareas

Financial

sector

• Mature and sophisticated market with lot of innovation

• All major financial institutions building Africa presence and investing

heavily in other parts of Africa and Middle East

• Financial institutions building their mobile and digitalization strategies as

part of internet and mobile banking

• Many institutions use old technologies, looking for leapfrog technologies

”DIGITAL BANKING

WITH THE FOCUS ON

MOBILITY””EVERYTHING

RELATED TO DATA

MANAGEMENT AND

NEW DATA SEARCH

FEATURES”

”HELP CUSTOMERS TO

DEVELOP ROADMAPS

FOR DIGITALIZATION””FRAUD

MANAGEMENT,

MALWARE AND

PHISPING

PROTECTION”

”IT SECURITY IN

GENERAL”

”BIG DATA FROM

CUSTOMER

INSIGHT”

”EXPANSION TO OTHER

PARTS OF AFRICA AND

FOOTPRINT CREATION ”

OpportunitiesThere is a saying in South Africa: “Banks buy everything in IT”. While this is an exaggeration, there is certainly opportunity for sophisticated ICT suppliers to find a market amongst mature IT buyersAll major banks and insurance companies are actively expanding into Africa and elsewhere. They are willing to partner with ICT suppliers who offer niche services/products for their marketsDigital banking with the twist of mobility is in great demand – huge investments will take place in that space in the near futureMany Financial companies have clear Africa strategy that makes it possible to expand into other areas in Africa for Finnish ICT companies.Companies are creating their digital strategies which opens up opportunities for Finnish companies. Everything related to customer data, data classification and customer experience development is in great demand IT security and cybersecurity in general is big investment area for all financial sector companies

SWOT: South African ICT market - focus on Financial Industry

Notice: Investments on digital/mobile banking are done now – window of opportunity is getting narrower all the time

Strengths

• Most sophisticated and mature ICT market in the African context

• Most Companies have reasonably mature security measures and software in place

• There are a number of organisations directed at promoting cybersecurity in South Africa. www.cybercrime.org.za is a cybercrime awareness portal, and the Information Systems Audit and Control Association (www.ISACA.org,.za) which trains and certifies IT security and audit specialists

• Companies are relatively well aware of the cybersecurity threaths and expect their ICT suppliers to address these risks

Threats• The Government is lagging in

Cybersecurity legislation. New cybersecurity legislation is being mooted for 2015/6, which may change the parameters of operation

SWOT: South African ICT market - focus on cybersecurity

OpportunitiesTwo types of legislation provide opportunities: King III which requires Company Boards to take responsibility for IT and with it IT security.

Any product or service which makes IT security clearly robust to Executives will be welcomed POPI (Protection of Private Information) requires companies to categories, document,

secure, and destroy personal data when its purpose has been served. Companies have so far dealt with this (if at all) in a crude way. Any sophisticated, automated, and secure data management service/ tool will be welcomed

Government Departments are laggards in terms of securing their ITDeveloping governance processes provide opportunities to consulting assignments.Security and fraud management are great concerns of almost all market players – with the right offering this should provide huge market opportunities for Finnish ICT companies concentrating on cybersecurity with clear focusTelecom operators moving from consumer markets to B2B market – they need to understand enterprise security related issues (disaster recovery, business continuity management etc.) –this provides opportunities for Finnish companiesFinding players who have general level competence in security but who require vertical experience.

SWOT: South African ICT market - focus on cybersecurity

Digital Health

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Digitalization and Security

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How to approach corporate customers in South Africa: Check List

1. Approaching customers without proper local partners and trust created through their existing relationships could be a daunting task – direct approaches are not likely to succeed. To approach customers directly, you need a major marketing / education / public relations program

2. Identify the real decision makers already in the early phase and address them – relationships are important

3. Decisions might be made somewhere else than in South Africa– be aware that you understand where the decisions are made

4. Show that you understand the local business culture by presenting your own operating model that fits into the customer’s operating model

5. A well defined value proposition is needed that shows that you also understand customers pain points and business challenges – local support of your service is critical

6. Value propositions need to include clear benefits from business perspective but quite often also in the personal level (decision maker level)

7. Closed RFP’s do exist in South Africa, even for those RFP’s you need local partners that are backing your offering – if you have good international references, these are your best bet

8. Be aware that financial sector is extremely conservative and slow in decision making, Telco’sknow their value as partners as they expect a lot in return for co-operation and security market is sensitive and requires even more than other markets from trust creation

Recommendations for Finnish ICT companies in South Africa

• The SA ICT market is sophisticated and matured ICT market – if you are looking for good infrastructure and “almost” European style business culture, South Africa is your location of choice

• The SA ICT market is highly competitive with almost all global players combined with strong local players – there are no quick wins and go-to-market activities require long term planning and commitment

• Because of the maturity of the market, growth is not as strong as in certain other geographical markets –if your resources are limited and you want to operate with “niche” offerings, you might find it easier to operate in some other African ICT markets

• As everywhere in Africa, you need local partners that are able to take you to the right networks and relationships – buying is highly personalised and it requires a lot of time to build right relationships

• South Africa is the gateway to other ICT markets in Africa as main telecom and IT service providers as well as their clients operate from South Africa – if you are planning growth in other African locations, South Africa is good base and option to build your business expansion

• South African ICT market operates same way as any other ICT market (despite local characteristics) – you need to have clear and focused offering message as well as well formulated value proposition to your potential partners and clients

Thank you.• Terry White: (+27 82 537 3887) tw@taiconsult.com• Mika Jantunen: (+27 79 123 6078) mj@taiconsult.com