Government potential: State shows commitment to increasing its spend on technology

According to the Department of Trade and Industry, South Africa has the largest IT market in Africa, ranking 20th in the world and eighth when IT spending is factored in as a part of GDP. While this bodes well for IT vendors and service providers, many attribute the high ranking to strong levels of IT spend among the corporate segment and assert that the sector could perform even stronger and increase attractiveness if the state resolved a number of issues impeding IT adoption and delaying its procurement processes.

Numbers

Breakdowns of the expenditure on information and communications technology (ICT) among different segments vary depending on which components of ICT, such as broadband infrastructure versus software and hardware, are tabulated. For the most part, figures arrived at by a selection of research groups show the government accounting for less than 10% of total expenditures.

According to World Wide Worx, a local technology market research organisation, spending on data infrastructure by private firms totalled R15.5bn ($1.89bn) in 2011, during which period the Department of Communications was comparatively allocated R1.29bn ($663m) towards ICT enterprise development.

Data from market intelligence provider IDC shows IT expenditure for the country increased 7.1% year-on-year to reach $12.9bn in 2011. Broken down by segment, the transport, communications and utilities verticals combined with the finance industry accounted for 72.6% of total expenditure, with the home sector making up a further 20% and the remaining 7.4% coming from the government. IDC predicts that IT spend in South Africa will continue to grow at a compound annual growth rate of 6.2% to reach a total of $17.42bn in 2016, with the government representing the fastest-growing part of this at a rate of 11.6%.

Efficiency Gains

In a country where ICT can be viewed as competing with pressing government priorities such as basic health care and education provision, it makes sense that government IT spend is proportionately lower than levels seen among industrialised nations. However, industry players counter that government departments should treat it as an enabler that, if effectively deployed, can secure efficiencies and lower the cost of public service delivery, rather than viewing ICT spend purely as an expense. Indeed, according to research commissioned by multinational Ricoh Imaging to study the efficiency gains among EU governments upon shifting to digital service delivery, public administration costs were measured to have been reduced on average by 15-20%.

“The government must invest in information systems and analytics that can be used to improve on and resolve a number of public service delivery issues, such as better town planning or fixing overcrowding in hospitals,” Vuyani Jarana, the chief officer for Vodacom’s enterprise unit, Vodacom Business, told OBG. However, although the government realises that IT can help improve the speed, delivery, cost and accountability of public services, this improved efficiency and automation is also likely to result in job losses. This has lead the government to be somewhat hesitant in pursuing widespread IT implementation.

The IT players that OBG has spoken with, while acknowledging that the government has the potential to contribute further towards their client mix, tend to view it as a segment that presents a number of difficulties regarding sales. “Government work is around 12% of our revenues, and this is a big opportunity we want to grow. However, the private sector tends to be much quicker at adopting when it comes to deploying IT in scale,” Benjamin Mophatlane, the CEO of IT services group Business Connexion, told OBG.

Procurement Problems

The State Information Technology Agency (SITA) is the government body in charge of the procurement of technology needs across government departments. SITA was founded in 1999, with the idea that having a single, centralised buyer to coordinate government purchases would reduce costs and increase standardisation via large-scale ordering.

Yet, the agency has been affected by allegations of financial mismanagement and staff turnover. In a 2011 budget speech, then-Minister of Public Services and Administration Richard Baloyi outlined the agency’s weaknesses as “poor service delivery, weak procurement processes, perceived high costs, and a high turnover of executive leaders and poor governance”.

Working with the public sector can be challenging for IT service providers. The government could benefit from better technology but SITA presents a complex environment for firms to work with. Many departments at the national and provincial levels are bogged down by SITA and the slow tender system.

Seeking A Turnaround

In 2010 the cabinet unveiled a three-year strategy to improve the agency, which was focused on tighter inventory control and procurement procedures. The turnaround strategy was set to reach its end in mid-2013, following some progress related to audited performance metrics. However, in May 2013 the CEO appointed to spearhead the turnaround strategy, the agency’s 16th in the last four years, was fired, while just two months later four executive committee members were suspended.

Government Champions

Whileselling to the government comes with its frustrations, it appears that some government departments and agencies are bucking the trend. “South Africa Revenue Services (SARS) is a trailblazer when it comes to being innovative and seeking productivity gains through IT, and some municipalities are quite IT savvy,” said Jarana. Business Connexions’s Mophatlane agrees, stating that it is not “all doom and gloom”, referencing the Reserve Bank in addition to SARS as clients that deploy IT in scale. The Department of Home Affairs (DHA) is another government entity that has demonstrated a shift in policy, indicating that it is starting to properly understand, appreciate and implement IT solutions.

A strong case study demonstrating SARS’s commitment to investing heavily in IT infrastructure is its e-filing system, which was introduced in 2003 to allow taxpayers to submit their income tax returns electronically and make payments online. It is estimated that each year over 2m South Africans file their taxes electronically. According to a press briefing issued by the former commissioner of SARS, Oupa Magashula, filing on time as a result of this widespread adoption has increased from 58% in 2008/09 to 80.7% during the 2010/11 tax season. In addition to enabling the speedy processing of tax returns within 24 hours, electronic submissions also reduce the potential for human error and increase compliance.

On the part of the DHA, a major ongoing initiative towards digitisation is the introduction of electronic identity document (ID) smart cards. Officially launched in late June 2013 via a ceremonial issuing of the country’s first-ever electronic ID to former president Nelson Mandela’s at his 95th birthday celebration, the cards will be made available in stages to the greater public, starting with first-time ID applicants and senior citizens. It is envisaged that the new smart cards will be processed in three days, a major improvement from the 54-day average turnaround time after application for the old green barcoded IDs.

Positive Prospects

South African enterprise, namely financial service providers and retailers, are considered to be setting the benchmark for Africa when it comes to investing in IT systems and back-end processes. But if institutional bottlenecks impeding the rate of adoption are resolved, the government has the potential to further raise the sector’s prospects, while enhancing its ability to deliver needed services to the public.