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Electronics, IT and Communication Sector

• The Trade and Investment South Africa Profile
• An Introduction to the South African Economy
• An Overview of the South African Electronics, Information Technology and Communications Sector
• The Telecommunications and Information Techology Subsector
• Competitive Advantages of the South African Electronics, IT and Communications Sectors
• Some of the Major International Companies Operating in South Africa
• Some of the Major South African Companies which are significant global or African players
• Business Opportunities
• Incentives

THE TRADE AND INVESTMENT SOUTH AFRICA PROFILE

When Trade and Investment South Africa was formed in 2000 as a division of the Department of Trade and Industry (the dti), the original investment promotion agency, Investment South Africa (ISA), and the export functions of the dti were merged to form a single organisation. Trade and Investment South Africa is responsible for stimulating foreign direct investment and exports of South African goods and services to international markets. As part of the country's national economic strategy, Trade and Investment South Africa is tasked with identifying and targeting key high-growth sectors and enjoys direct access at the highest levels to both South African business sectors and trading partners. Thus, Trade and Investment South Africa is the essential point of contact for anyone involved in investment and export promotion in this country.

At Home in South Africa

Locally, Trade and Investment South Africa functions under the umbrella of the dti, a broader family of institutions controlling state assets in excess of R25bn and led by Minister Alec Erwin. A number of units dedicated to specific aspects of the business process operate within Trade and Investment South Africa. Sector specialists and strategic analysts work together to oversee targeted export objectives. Simultaneously, logistics specialists, who are located in the Enterprise Industries Development Division (EIDD) of the dti, identify and take steps to eliminate bottlenecks in the supply chain, for both exporters and investors alike. Thus, the dti provides a single-transaction arena for investors and exporters at a national level and Trade and Investment South Africa is also mandated to co-ordinate provincial initiatives to match investor requirements with opportunities available within each of the nine provinces.

Trade and Investment South Africa focuses on promoting eight sectors of the South African economy that have shown the greatest growth potential and marketability. These include:

• Agroprocessing
• Automotive and Transport Industries
• Chemicals, Pharmaceuticals and Biotechnology
• Cultural Industries
• Information Communication Technology and Electronics
• Mining and Metal-based Industries
• Textiles, Clothing, Leather and Footwear
• Tourism

Abroad

Trade and Investment South Africa identifies opportunities and provides core-market intelligence in 48 regional offices within South Africa's diplomatic centres worldwide. Key investors are targeted in priority-growth sectors and specific sectoral expertise is added to the equation. The regional managers operate according to international best practice standards, pioneered by leading trading nations such as Singapore and Ireland. Trade and Investment South Africa's single-transaction arena approach to service is ensured and promoted via their efficient use of an extensive array of communication mediums. From negotiations and exhibitions to handing over prospective leads to domestic-based facilitators and units dedicated to specific aspects of long-term business processes, Trade and Investment South Africa has a finger on the communication pulse continuously.

Trade and Investment South Africa is a flexible, customer-oriented organisation, specifically in regard to the services it delivers and financial incentives it oversees. For instance, in 2001 the export sectors prioritised by Trade and Investment South Africa realised R15.8bn in trade growth. In addition, South Africa’s manufacturing sector gained R4.7bn in fixed inward investment. Clearly Trade and Investment South Africa plays a guiding role in the promotion of South Africa as a leading, internationally competitive business destination.

Investments Unlimited

As the central point of contact for anyone interested in investing in South Africa, Trade and Investment South Africa offers the following services:

• Information on the various investment sectors and industries within South Africa
• Facilitation of inward investment missions, including travel itineraries and movement within the country
• Introduction to potential joint-venture partners
• Consultation on the prevailing regulatory environment
• Introductions to relevant stakeholders in the private and public sectors
• Information on tax incentive packages
• Assistance with work permit applications
• Guidance with plant / site locations
• Logistical support for relocation
• Dedicated aftercare services
• Input into policy formulation on investment and trade promotion.

Exports Unlimited

The export process is sector specific, and sector strategies offer the framework within which exports are encouraged and incentivised. These strategies address competitive issues and international best practice standards regarding the product. Trade and Investment South Africa sector specialists have a clear understanding of, and access to, the various industries. Hence, they are able to provide sound advice, recommendations and assistance – information that is invaluable to the potential exporter.

Trade and Investment South Africa provides a Customer Care service for manufacturers, a facility that offers information and advice on current export processes and procedures. To ensure enquiries are channelled to the relevant specialist organisations, the dti Customer Contact Centre can be contacted on:
+27 (12) 394 9500 (International callers)
or 0861 843 384 (Local callers)

Trade and Investment South Africa is also mandated with developing small and BEE exporters and to manage the Export Marketing and Investment Assistance Scheme (EMIA) as a key enabling incentive. Through EMIA funding is provided to companies for:

• Primary export market research
• Foreign direct investment research
• Exhibition assistance
• Outward-selling trade missions
• Outward investment recruitment missions
• Inward-buying trade missions
• Inward investment missions
• Assistance to industry specific sectors.

In addition, the formation of industry-based Export Councils to assist exporters in reaching their targets is promoted. The approach has been tailored to allow small businesses, as well as artists and craftspeople, to form an SMME Export Council and an Arts and Crafts Export Council, which are able to function as entry points for first-time exporters. This allows small businesses in any sector to access the dti support structures and become successful exporters.

AN INTRODUCTION TO THE SOUTH AFRICAN ECONOMY

South Africa is one of the richest countries on the continent and in the world in terms of minerals and other natural resources. It was, and still is, amongst the world’s largest exporters of gold and diamonds and it also exports a wide range of other industrial minerals. A Mediterranean climate in its southern region facilitates its role as a major world exporter of citrus fruits and wine.

This abundant natural wealth led European settlers here as early as the 17th century. The economy boomed and physical infrastructure was developed. Unfortunately in the middle of the 20th century, the country faced the problem of apartheid, decisively resolved in 1994 with the first democratically elected government. Since then the country has begun to rebuild its economy and achieve much of the vast potential of which it is capable.

Today South Africa has a population of 44 million people and a GDP of US$113 billion (2001). In terms of its business environment and international competitiveness, it is rated at the low end of the OECD countries and at the top end of developing countries. The Global Competitiveness Report ranks South Africa 25th out of 75 countries, fifth best amongst all developing countries in the world. In terms of general infrastructure, the country is rated 22nd, and in terms of its financial market sophistication 16th. Unlike most developing countries, South Africa has a strong technological base, which has resulted in its patenting products, such as the computer tomograph, using indigenous technology.

Overview of the South African Electronics, Information Technology and Communications sectors

South Africa’s established and sophisticated indigenous ICT and electronics sector comprises more than 3 000 companies and was ranked 22nd in 2001 in terms of the total worldwide IT spend. Growing at a rate of 50% per annum and fourth fastest growing cellphone market in the world, the South African GSM cellphone market has three operators: Vodacom, MTN and Cell-C.

With approximately 5.5 million installed fixed-line telephones, South Africa is ranked 23rd in telecommunications development in the world and represents more than 30% of the total lines installed in Africa. South Africa’s transmission network of 156 million circuit-kilometres constitutes the backbone of all telecommunications services.

Telkom, the major fixed-line operator in South Africa, is a key player in a US$630m optical fibre undersea cable project that will cater for Africa’s growing telecommunications needs for the next 25 years. Almost 40 nations and several international telecommunications operators have joined Telkom in the SAT-3/WASC/SAFE initiative, which will link African nations with Asia and Europe. The cable will be capable of transmitting 80 gigabits per second between two points.

Electronics industry revenues in South Africa exceeded R55bn in 2001 and continue to grow at levels well above the GDP growth rate. Key players in industrial, power, defence and telecoms electronics include Siemens, Alcatel, Ericsson, Altech, Grintek, Spescom, Tellumat and Marconi. With improved economic and regulatory conditions, and high levels of growth and activity in the African telecommunications market, South African companies are ideally situated to supply the growing demand for fixed and wireless telecoms equipment to the rest of the continent.

An established, highly competitive consumer electronics market producing high value-added electronic products has also played an important role, with South African exports rapidly growing beyond R4bn per annum. South African companies are world leaders in pre-payment, revenue management, and fraud prevention systems, and in the manufacture of set-top boxes, all exported successfully to the rest of the world. Other consumer products, such as small appliances, are rapidly growing exports to the EU.

The Gauteng region is responsible for approximately 60% of all revenues generated in the ICT sector, the Western Cape for approximately 20% of revenues. The remainder is generated by activities in other areas, with a significant hub in Durban, Kwa-Zulu Natal.

The Telecommunications and Information Technology Subsector

Total Historic and Expected Sales
Telecoms (Rm)	2001	2002	2003	2004	2005
Services	218,750	255,750	282,990	317,742	353,966
Infrastructure	62,690	65,236	67,926	73,050	79,113
Total	281,440	320,926	350,916	390,792	433,079
Growth	14	14%	9,5%	11.4%	10%
IT (Rm)
Total vendor revenue	34,300	37,793	41,991	46,484	51,487
Growth (Nominal)	10.5%	10.2%	11.1%	10.7%	10.8%

Source BMI-T10.8%

South Africa’s use of the Internet has made it the 14th largest Internet country market - ISP revenues in 2000 were R700m.

The Electrical and Electronic Equipment Subsector
Turnover and Expected Growth Rates
	Turnover 2000 Rbn	% Growth p.a. 2001-06
Electrical machinery	21,548	6%
Electronic equipment and appliances	17,884	4.5%
Source: SA Sectoral Outlook - ABSA
Domestics Output Trends
	Domestic output 2000 Rbn	% Growth p.a. 2001-06
Electrical machinery	13,926	3%
Electronic equipment and appliances	5,486	4.6%

Source: SA Sectoral Outlook - ABSA

Competitive advantages of the South African Electronics, IT and Communication sectors. Some of South Africa’s competitive advantages in this sector follow:

• Wireless Technology

  South Africa has indigenous wireless technology. South African operators have the know-how to build GSM networks and related businesses. These technologies include financial transactions over mobile phones, systems integration, wireless LAN solutions and WAP services.

• IT skills

  South African training institutions are emerging as popular and cost-effective choices. These training institutions are attracting talent from all over the world.

• Piloting new innovations

  The diversity of the South African market, first world know-how in business and a developing country environment make it an ideal test lab for new innovations. Testing and piloting systems and applications are growing businesses in South Africa. Currently South Africa is pioneering pre-payment systems, vehicle tracking systems, air traffic control systems, and m-commerce systems.

• Platform for Infrastructure development and Application Hosting for Africa

  The South African ICT products and services industry is well positioned to penetrate the African market. South African companies and South African-based subsidiaries of foreign companies have supplied most of the new fixed-line and cellphone networks that have rolled out in Africa in recent years. This market is growing fast as regulatory reform spreads in Africa.The communications infrastructure layers include hardware physical communications, server or switching, protocol and application layers. Profits in the cellular market have grown remarkably. South Africa’s MTN is operating in five African countries beyond South Africa, namely Cameroon, Uganda, Rwanda, Swaziland and Nigeria. Vodacom was awarded Zambia’s fourth mobile licence, and also entered the Democratic Republic of Congo, investing R370m to take over the operations of the Congolese Wireless Networks. Vodacom also operates in Lesotho, Tanzania and recently won the second GSM license in Mozambique.

• Time Zone

  South Africa falls in the same time zone as Europe. This, along with English as the main language and competitive costs, makes South Africa very competitive in hosting international call centres. South African-based call centres now serve a growing number of major European companies, e.g. Mine Pearl and Lufthansa have call centres in Cape Town. Telkom has strategic alliances with international operators and thus capacity at various points around the world to serve their customers reliably and at a competitive price. The environment is improving still further as competitors in international telecom services launch their products in the current phase of managed liberalisation.

Some of the major international companies operating in South Africa

Some of the major South African companies which are significant global or African players

Through the long years of economic isolation, several indigenous companies in South Africa have grown to become globally recognised. Some of these are listed below.

Business opportunities

Sector	Major Markets	Rationale
Wireless Software	Solutions Worldwide	Experience in arrears such as financial transactions over mobile phones, systems integration, wireless LAN solution and WAP services. (Global Technologies, Siemens SA)
Embedded Software	North America and Europe	Experience in demanding industries such as the defence sector.
Systems Integration	Africa	A wide range experience
Electronic linkage hardware	Worldwide	New applications for developing countries
Wireless security systems	Worldwide	A demanding and innovative security environment
Motor relays and pre-payment metering	South America, Eastern Europe and Africa	Developed expertise due to problems with payment of electricity and water bills
Power systems and equipment	Africa, Middle East, South America, Eastern Europe, Australia	Rehabilitation of power stations in demanding environments, supply of electric power equipment to Eskom.
Call Centre services	North America and Europe	English language, European time zone, low cost
Wireless Communications-Hardware	North America and Europe	Demanding customers in South Africa and the rest of Africa
Infrastructure in Africa and Application hosting for Africa	Sub-Saharan Africa	SA Companies are starting to position themselves as trusted partners in Africa. In most of the markets, the demand is mainly from government, telecoms and financial services.
Grid computing	Worldwide	South Africa can link cheaply and effectively into grid pools.

Incentives

A range of incentives is available to qualifying investments. The more commonly used incentives are given below: