Outsourcing in South Africa gets a boost from battered rand

Following a year of strong growth, the BPO sector in the Western Cape hopes to be turbocharged by the fall in the value of the South African rand this year.

Business process outsourcing (BPO) companies in South Africa's Western Cape province are expecting another year of rapid growth, thanks to a dramatic fall in the value of the country's currency against the US dollar, British pound, and the Euro during the first half of 2013.

This follows robust performance by the sector, which has grown 13 percent from 33,500 to 38,000 jobs over the past year, according to a newly released annual report from Business Process Enabling South Africa (BPeSA) Western Cape, a trade association that promotes the province's BPO sector. The province's contact centre and BPO market is now worth around R8bn (around $700m) a year, a modest increase from R7.9bn last year.

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Of the new jobs the province's BPO sector has created over the past year, 3,100 (65 percent) are dedicated to serving the offshore market. The offshore business is today responsible for an estimated 8,300 jobs, according to BPeSA Western Cape. The explosion in offshore outsourcing to the South African province is attributed to attractive government incentives and falling telecom costs.

The UK is still the province's biggest offshore customer, though it is also attracting business from other parts of the world. The UK accounts for 61 percent of the Western Cape's offshore business, down from 65 percent in 2011-12, while the Australian market grew from four percent to nine percent in 2012-13. Among the international brands use the Western Cape as a strategic customer service base are Amazon, ASDA, British Gas, Bloomberg, iiNet, T-Mobile, Shell, Swiss International and Shop Direct.

This year, the industry is expecting similar growth as new deals are signed up with offshore customers and multinational outsourcing firms invest in the Western Cape, said Gareth Pritchard, CEO of BPeSA Western Cape.

"These new market entrants are outsourcing specialists who will bring in new business on a sustainable basis," Pritchard said. "The industry is on a roll, and we expect it to be even more so because of the way the rand is going." In addition, the industry is benefitting from the best practices international outsourcing firms are bringing into the market.

Following an extended period of relative strength, the South African rand has been one of the poorest-performing emerging market currencies in 2013. It has lost more than 15 percent of its value against the US dollar and British pound since the beginning of the year. A weak currency, paired with attractive government incentives, mean that South Africa now offers cost-savings of around 50-70 percent for UK businesses when it comes to contact centre and BPO services.

Although the currencies of South Africas' larger offshore outsourcing rivals such as India and the Philippines have also experienced sharp drops in value against major currencies this year, Pritchard said the weak Rand could attract buyers of outsourcing services to the country in the months to come.

The weak currency isn't the Western Cape's only competitive weapon in the BPO market — BPeSA also emphasises the importance of its strong base of English language skills, government incentives, and healthy infrastructure. "The rand is a bonus," Pritchard said. "People were comfortable with where it was before, so it's a windfall profit for the industry."

A national incentive scheme from the Department of Trade and Industry is one factor that has helped to ignite BPO in the Western Cape. It pays investors up to R88,000  for each job created and maintained over a three year period and serves to further cut the cost of doing business in South Africa.

That programme is due to end in 2015, but government and the industry are working together to create a replacement incentive that will be "even more interesting," Pritchard said. One strength of the Western Cape’s industry is that all the major players are working together to grow the whole sector rather than focusing only on growing their own businesses, he added.

The Western Cape government also offers a region specific incentive that provides all new investors to the Western Cape with free telecoms services for the first six months of operation.

In addition, improvements in the South African telecoms landscape have helped to make the country more attractive as a destination for offshore outsourcing. Between 2003 and 2009 telecommunications costs fell by 85 percent, BPeSA said, and are likely to fall another 15 to 20 percent by 2015.