South Africa is renowned for having a large pool of talented, innovative software developers with first-world know-how. So much so, that the country is ranked among the top 30 software development outsourcing destinations in the world, according to information technology research and advisory firm Gartner.
One of South Africa’s most notable examples of a successful software developer is Mark Shuttleworth, founder of Ubuntu, the pioneering computer operating system that is distributed as free open source software. “However, these days in South Africa, there is very little incentive for local software developers to use their talents and skills locally, since there is no preferential procurement policy that encourages enterprises to use locally developed products,” says Rick Parry, CEO of local software distributor and Progress partner, AIGS.
“So while international companies might start to recognise South Africa as a business process offshoring (BPO) destination for software development, our own government and corporations are still investing in internationally produced software, which means that all of that valuable software royalties and licensing fees are rolling out of the country.”
The latest predictions, collected in a report called the “South Africa Enterprise Applications Software Market 2013 – 2017 Forecast”, compiled by the International Data Corporation (IDC), confirm this. According to the report, overall enterprise applications software (EAS) spending in South Africa is set to increase 10.5% year-on-year in 2014 to total $518.45 million. IDC expects spending on EAS in South Africa to expand at a compound annual growth rate (CAGR) of 11.6% across the five-year forecast period to total $787.19 million in 2017, with banking, government and the telecommunications sectors to be the biggest EAS spenders throughout the five-year forecast period.
The problem is, most of this money will continue to go to major international software vendors.
IDC’s recently released “South African Enterprise Applications Software Market 2012 Vendor Shares”, pinpoints five vendors specifically that accounted for 94.8% of total licence and maintenance (L&M) revenues collected in South Africa during 2012. SAP grabbed the lion’s share, with 48.0%; Oracle came in at second place, with 20.0%; Sage took third, with 18.0%; and Microsoft Dynamics and Syspro (the only South African software company) came in at 4th and 5th place, with 5.3% and 3.5%, respectively.
Parry says the other issue is that South Africa still lags behind the United States in terms of incubation and innovation. “It’s not that the software developers aren’t creative and don’t generate new ideas. It’s that companies aren’t willing to invest in and fund those new ideas and risk possible failure. When it comes to software, they would much rather buy something that is internationally known and ‘safe’. The considerable upfront cost, together with the expensive annual maintenance and licensing fees, makes it prohibitively expensive to switch to another system later on.”
That very much leaves software developers in limbo, because while South Africa is extremely results-oriented and entrepreneurial, Parry says, the UK and US markets are far more conservative, only really taking to products that are local and known to them. “In order for South African software developers to become successful in those countries, they have to actually be based there – particularly in the US.”
The “Information Economy Report 2012”, which was compiled by the United Nations’ Conference on Trade and Development, stated that piracy, poor ICT infrastructure and inadequate protection of intellectual property rights are some of the major challenges hindering ICT software development and service expansion in developing regions such as Africa. Another issue highlighted in the report is the limited access that software developers in Africa have to venture capital.
Now that the problems hindering local software development have been identified, something should be done to address it, Parry says. “As the UN’s report points out, software production can contribute to the structural transformation of economies by weaning them away from dependence on low-technology goods. In a country like ours, where software implementation challenges are exacerbated by a fluctuating exchange rate, software developed locally, by people who understand the local culture and economy, can provide greater operational efficiencies as well as cost savings.”