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Increased business confidence to drive Africa ICT sector

Telecom tariff wars are over, but vendors turn to product development as key to attracting new customers

Increased business confidence, recovering economies, infrastructure investment and enhanced product development will drive Africa IT markets, analysts say.

Analysts from IDC and Africa Analysis are projecting growth in cloud services as bandwidth becomes cheaper and companies seek ways to reduce capital and operational expenditure.

IDC expects IT spending in Middle East, Africa, and Turkey to 10 percent growth in 2012 and virtualization to attain must-have status, as a cornerstone and foundation for future expansion.

"Several medium-sized and large organizations, having proof tested virtualization in 2011 during data center consolidation efforts, will move to more extensive adoption with greater confidence in 2012; desktop, storage, and application virtualization initiatives will gain momentum, particularly within large organizations," said Jyoti Lalchandani, vice president and managing director of IDC Middle East, Africa, and Turkey. "The emerging African countries of Kenya and Nigeria will also see higher levels of adoption in 2012 as awareness spreads and users begin to realize the benefits."

In 2010, spending on IT services had slowed down in Africa but the budgets of international companies have once again started rising in outsourcing destinations like South Africa. An IDC study on IT services in South Africa released this month shows the country recorded moderate growth.

"After the freeze in IT budgets that came about as a result of the global economic crisis, 2010 saw a rebound in IT services spending," said Suzanne Nolan, research analyst for IT Services for IDC South Africa. "The growth in IT services spending was driven by a recovering economy, increased business confidence, expanding bandwidth availability, and various infrastructure investments made in the country in 2010."

IDC forecasts the total South African IT services market to expand at a compound annual growth rate of 8.7 percent to exceed $17 billion in 2015, with continued spending focus among end-user organizations and solutions that help reduce operating expenses.

Africa's Business Process Outsourcing sector has stagnated with countries like Kenya unable to crack the global outsourcing market but South Africa has managed to sustain growth through innovative managed services.

"South African growth was mainly driven by managed services rather than by traditional information system outsourcing contracts," added Nolan. "The healthy growth in outsourcing services signifies a level of sophistication and maturity within the IT services segment."

In the telecom sector, the decline in tariffs has stopped as operators seek to streamline expenses as opposed to winning more subscribers. Bharti Airtel's acquisition of Zain network in sub-Saharan Africa heralded the tariff wars two years ago but by late last year, call costs had started rising.

"The era of tariff war is over; operators have begun to streamline operational expenses and the strategy of winning more subscribers through tariff reduction will be terminated in 2012," said Dobek Pater, senior telecoms analyst at Africa Analysis. "The economies of various countries in Africa are becoming more expensive to run businesses therefore the only way to have profitable revenue is proper product pricing."

Pater expects enhanced product development, increasing product variety, and "last mile" telecom technology becoming more affordable outside urban areas.

"There will be a lot of focus on delivering quality service to subscribers rather than winning more subscribers especially with the large operators who have coverage in a lot of countries; subscriber retention strategies and loyalty will be the strategy employed for this," added Pater.

With more operators rolling out their own infrastructure and improving on quality of service, competition is expected to be high in coastal countries that have fiber optic coverage, while connectivity costs in land-locked countries decline further.


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