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South Africa's National Development plan delivery in ICT

By Reshma-Gopee Oct 16, 2014 1732 Words
Job creation and government employment policies in the ICT sector Unemployment is a widespread global issue bringing with it both political and economic unrest in both developed and emerging countries from the US to the Eurozone. South Africa in particular struggles with high unemployment (STATSSA estimates a quarter of its population is unemployed) and while jobs are being created, the population rate is growing faster than the job creation rate. This paper explores the ICT industry in the South African context and considers whether current government policy will assist the industry to overcome its demand and supply challenges and be able to generate jobs as set out in the ICT charter and the National development plan. The South African Context

The table below shows the STATSSA official unemployment rate at 24,1% (however including discouraged work seekers brings this figure to over 31%) and is augmented by high levels of inequality with the World Bank estimated GINI index at 63,14 in 2009 (depicted in the Lorenz curve below)

Figure 1: South Africa’s Lorenz curves 1996-2009 Source: The Lorenz curve is used to depict wealth distribution. The straight line shows perfect distribution and the difference between the two represents the GINI coefficient.

Table 1: Key labour market indicators Source STATSSA Quarterly Labour Force Survey: Q4, 2013

Overview of the ICT sector
The information technology and communication (ICT) sector is an integral component of the South African economy. The NDP 2030 ICT vision is that “ICT will underpin the development of a dynamic information society and knowledge economy that is more inclusive and prosperous. A seamless information infrastructure will meet the needs to citizens, business and the public sector… at a cost and quality at least equal to South Africa’s competitors.”(pg. 170) Growth in the ICT sector has been driven by mobile growth and in 2012 had contributed to 6% of GDP. (Gillwald et al, 2012) The main areas for future expected growth are internet and data usage, broadband speed and quality and ICT technologies. The 2014 WEF Global Information Technology Report which can be used to measure how prepared an economy is to maximise ICT to promote economic growth ranked South Africa 70th out of 144 countries. The report noted improvements in individual and business ICT penetration but cited lags in government use of technology to impact society; a weakness in skills development (97th); and high infrastructure costs that negatively impact affordability (112th). Research conducted on the industry in 2012 by the Small Enterprise Development Agency (SEDA) showed more than half of ICT firms are concentrated in Gauteng, with the Western Cape and KwaZulu-Natal ranked next. International firms like Microsoft, Hewlett-Packard and IBM are have offices in Gauteng. SEDA identified multiple opportunities (shown per province in appendix 1) and challenges faced by the industry including: 1.Skills shortage, which has a negative impact on innovation and affordability and drives up costs as businesses need to import skills. 2.Access to funding, including attracting foreign trade and foreign direct investment as the market is globally very competitive 3.Low market penetration in the domestic PC market

4.Infrastructure challenges, including the high costs of telecommunications and electricity. 5.Regulation
6.Fluctuating foreign exchange rates
According to SEDA, 12.78% of jobs created in 2010 were in ICT, with an increase in the number of jobs in the electronic components and communications, but a decrease in software and IT jobs. The Department of Science and Technology in line with the NGP’s call for the development of knowledge based economy with a focus on technology, e-commerce and financial services developed a 10 Year Innovation Plan to achieve this transformation, although given the low skills base of the country, it may be more economically feasible for South Africa to focus this shift towards manufacturing. The struggling education system has negatively impacted the ability to deliver the skills required for this transformation and there is a mismatch between the skilled jobs being created and South Africa’s low-skilled population. The NDP recognises that education is a key component for job creation as it enables local business to expand and compete in a global market. It also serves to attract foreign investors. In the SEDA survey, skills shortages remained one of the industry’s biggest challenges. This lack of skills, drives up the costs and impacts the global competitiveness of the industry. This also has a knock-on effect in other industries, especially manufacturing and financial services which need to keep technologies in line with global standards to perform effectively and remain competitive. The rigid labour law environment coupled with the uncertain economic climate does not encourage businesses to take risks and employ and develop people in-house as they cannot easily get rid of unsuitable employees. ICT consulting services and software development in particular are project based and demand is not constant. This segment of the market supplements a permanent workforce with contract workers or make use of labour broking for periods when they cannot meet demand. Labour broking provides many companies with the flexibility to adjust the size of their overall workforce to match the real demand for their goods and services, however recently proposed amendments to the Labour Act intend to cull this practice. The inflexibility and the costs to comply with these laws could have the unintended consequence of discouraging individuals from starting up a new company to take advantage of an opportunity or of restricting potential expansion of existing firms in this industry.

State spending in the ICT industry could stimulate demand and result in job creation. Government infrastructure spending will give this industry a boost in the short run, however not all the jobs created are sustainable, although some direct jobs will remain for maintenance of the infrastructure. Because ICT is an integral part of most businesses, government spending and projects that stimulate other sectors could also result in a demand from these sectors for ICT skills. The Department of Communication is currently funding two projects - the set top box and expansion of the broadband infrastructure - that should create both direct and indirect employment. SMMEs around the world are seen as the engine room for job creation and are considered a labour absorbing market. SEDA found the inflexibility of labour laws, lack of skills and high infrastructure costs are some of the barriers that prevent new SMMEs from entering the market. Lack of financing and access to finance for capital and expansion is the main reason cited for restricting existing business from expanding. There are multiple government initiatives that seek to assist here, including: 1.The DTI and the South African jobs fund are government initiatives where companies considering expansion but are not willing to take on the risk can obtain government funding for projects that will result in sustainable job creation. 2.The IDC’s ICT Business Unit provides funding to ICT projects that have the potential to create jobs and develop rural communities and society. 3.The SEDA Technology Programme (STP) was created to offer funding and support services to ICT businesses. The regulated telecommunications market structure, including the fixed line communications market dominated by state-owned enterprise Telkom has been blamed for the high costs in this arena. “The policy environment has not created an environment conducive to investment, nor institutional arrangements likely to result in effective competition - resulting in a number of regulatory bottlenecks that constrain sector expansion.” (Gillwald et al, 2012) The improvement of the telecommunications infrastructure and the resulting reduction in the associated costs of telecommunications, internet and broadband could result in an increase in demand for the supplementary ICT services from households and small businesses. This stimulated demand could result in increased jobs. Conclusion

The South African ICT industry is a dynamic industry that has shown robust growth despite skills shortage, high infrastructure costs and inflexible and sometimes inefficient regulation. As the continued infrastructure development lifts some of the high costs that are restricting the firms in this industry, more growth should be expected and there should be focus on building knowledge skills in the economy to meet this demand if South Africa wishes to become more globally competitive. The planned government in this and other sectors should also drive both direct and indirect job creation and ensure that this industry continues its growth trajectory, however the serious attention is needed to attend to labour supply issues. To encourage job creation in this industry, government needs to reconsider the inflexible labour laws on the on this industry and introduce focused incentives that will encourage the industry to employ individuals with the intention to develop skills in-house. Private-public sector partnerships should be considered to resolve the skills crisis.

Appendix 1
Opportunities identified per province by SEDA in the ICT sector during the surveys OpportunityProvince
Business application softwarexxx
Cctv systemsx
Creative industriesXxxxx
Document management systemsxx
e-learning, e-banking software developmentxxxxx
e-waste managementxx
Internet and wifi providerxxxxx
IT training and software developmentxxxx
Multimedia platformsxxx
Network developmentxx
Online marketingxxxx
Social media platforms and softwarexxx
Telecommunications and technology developmentxxxx
Voice over ITx
Website developmentxxxx

Reference list

2014, “Budget review 2014”, National Treasury, Retrieved 19 May 2014, 2014, “Quarterly labour force survey: Q4 2013”, STATSSA, Retrieved 19 May 2014, Beñat Bilbao-Osorio, 2014, “The Global Information Technology Report 2014”, World Economic Forum, Retrieved 19 May 2014, 2012, “Research on the Performance of the Services Sector”, Small Enterprise Development Agency, Retrieved 19 May 2014, 2008, “Innovation Towards A Knowledge-Based Economy: Ten-Year Plan for South Africa (2008 – 2018)”, Department of Science and Technology, Retrieved 19 May 2014, Alison Gillwald, Mpho Moyo and Cristoph Stork, 2012, “Understanding what is happening in ICT in South Africa: A supply and demand side analysis of the ICT sector, Retrieved 19 May 2014, South Africa: NDP key to SA’s long-term growth, 15 March 2013, Retrieved stories/201303150289.html?viewall=1

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