Finance minister Nhlanhla Nene's medium-term budget has done little to assuage the fears of South Africans who have taken economists' warnings of a looming recession to heart. They say the signs are already visible; electricity supply constraints, falling commodity prices and lower confidence levels are resulting in growth forecasts being revised ever lower.
Hot on the heels of the International Monetary Fund downward revision of its 2015 growth estimate for SA to just 1.4% has come Nene's similar forecast of just 1.5% for this year, significantly lower than February's growth expectations of 2%. The trend is downward...
There is little doubt the economic woes facing SA will impact the ICT sector, probably as early as the first quarter of 2016. For those who were around in the turbulent times of 2008/9, they might arrive with a sense of d'ej`a vu.
Rejuvenation
Back then, Dr Hamadoun Tour'e, the International Telecommunication Union secretary-general, is reported to have said: "The crisis may challenge many firms, but it will also revitalise the industry and enable new entrants, with new technologies, to thrive."
Dr Tour'e's words ring true today, supporting the belief that SA's ICT industry will survive the recession, but its effects could be both good and bad - positive and negative - depending on perspective.
For example, how companies involved in the distribution chain weather the storm of recession will depend to a large extent on their structure and marketing philosophies.
For businesses narrowly focused on one industry vertical, or that market one specific product set or service, the impact of an economic slowdown could be as predictable as the outcome of a spin of the roulette wheel.
If their products are new and innovative or their services are in high demand, they will view the downturn positively, as they should gain more of a share of a shrinking pie. However, should demand tail off for their specialised offerings (and they have little up their sleeves by way of diversification), their immediate future will be bleak.
Nevertheless, a recession can be expected to create new opportunities for firms with disruptive technologies to prosper, especially in market niches where prices are falling and technology is evolving.
Against a backdrop of stagnant growth, the marketplace can expect an increase in economic pressures on newer ICT projects fuelled by 'belt-tightening' and budget constraints.
As this scenario morphs into reality, project managers may well be persuaded to change focus and move away from traditional, 'safe' IT infrastructure vendors and opt for lower-priced alternatives from new-generation firms with innovative ideas.
The dichotomy associated with economic uncertainties will persuade many ICT managers who once exhibited almost irrational loyalties to specific brands to take a broader view and become more brand and vendor agnostic, while placing their faith in innovation. They will most likely have to make a solution fit a restricted budget, rather than take a given solution and tailor a budget to accommodate it.
A recession can be expected to create new opportunities for firms with disruptive technologies to prosper.
When it comes to ICT purchases for routine upgrades or expansions, expect buyers to play a waiting game, hanging back on giving the go-ahead for the next phase of a multi-phased installation, for instance, as they wait for the worst of the recession to pass.
One of the characteristics of the ICT sector over the past two years has been a steady increase in the pricing of imported products, keeping pace with the inexorable fall of the rand.
Naturally, most of these increases have been passed on to customers, as has always been the case.
While this might be seen as detrimental to business optimism in general, there are vendors, resellers and dealers who benefit from increased profit margins - the percentage of which has not significantly changed over the years - buoyed by the higher prices being billed throughout the distribution chain.
While the short-term trend may well reflect margin shrinkages in 2016 - and the pressure will be on for this to happen - there is enough evidence to show revenue and overall profit will continue to increase on a broad basket of high-demand consumer products in the ICT arena.
While there are those with a 'glass-half-empty' view of the ICT marketplace in 2016 and beyond, there are a number of players with a 'glass-half-full' vision, particularly in the software arena where margins are significantly higher, allowing much of the economic 'hit' associated with a recessionary climate to be absorbed. There remains a significant amount of 'fat' in this sector.
As history shows, the ICT industry is a major driver of economic growth and a vital industry in its own right, underpinning many other critical sectors. A recession - or even flatlining growth - in SA in 2016 may well challenge some ICT firms, but it should also rejuvenate the industry and give new entrants an opportunity to make their mark.
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