IT feels the pinch

Johannesburg, 20 May 2009

South African companies have not escaped the negative consequences of the global financial turmoil, says BMI-TechKnowledge.

In its report, titled the South African Corporate IT End User Customer Survey 2009, BMI-T reveals that, despite having limited direct exposure to causes of the economic downturn, the risks to 2009's economic growth are increasing.

"This [economic downturn] had had a mixed effect on corporate IT expenditure, as corporates need to spend on technology to improve operational efficiency but they are definitely sweating their IT assets," states Lesley-Ann Dos Santos, BMI-T's enterprise research business manager.

The report states that SA's economy shrank 1.8% in the fourth quarter of 2008 - its first contraction in 10 years and the sharpest since the last recession in 1992. The SA Reserve Bank has observed that the current contraction is a reflection of deteriorating consumer and business confidence, declining global demand, and a relatively tight domestic monetary policy.

The survey reveals the pinch has been most felt by large organisations, with 1 000 employees or more. Companies in the 200-499 employees bracket indicated they expected an increase in IT expenditure in all categories this year.

IT services spending is still expected to grow, and will remain at 37% of the total IT spend as in 2008. Hardware spending is expected to decline slightly, in contrast to the positive growth rate forecasted a year ago, the survey reveals.

However, the risks to 2009's economic growth are increasing. According to BMI-T, a recession is likely as the global contraction results in lowered demand, corporate disinvestment, employment retrenchment, and cutbacks and closures throughout industry sectors.

Saved by 2010

In the near-term, spending on the infrastructure programme, as well as the Soccer World Cup 2010 and all its attendant benefits are drivers of growth, the report states. Sporting events in 2009 are also predicted to add R2 billion to the economy and boost SA's tourism image.

"So far, 23% of corporates have reported a financial benefit from the 2010 Soccer World Cup. However, the credit crunch and declining commodity prices will make it harder for both state-owned and private companies to finance new projects in the coming year, and some infrastructure investment may have to be postponed," says Clinton Jacobs, BMI-T's lead analyst for IT products and services.

The energy crisis was also a major cause of the sharp decline in growth in the first quarter of 2008. Mines were forced to cut production, and commerce and the industry nationwide suffered loss of productivity. According to BMI-T, the suddenness of the critical shortage of power was one of the major problems, and both business and consumers were thrown into a state of near panic.

"Seventy-three percent of corporates surveyed said they were affected by the power outages and 18% were heavily or severely affected. Eighty percent of the companies interviewed implemented a backup power solution following the 2008 energy crisis," states Dos Santos.