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South Africa pushes for ICT outsourcing

Big tax breaks and training grants are being offered to companies considering transferring their business process outsourcing to South Africa
Written by David Meyer, Contributor

South Africa is pushing to become the destination of choice for business process outsourcing, citing major investment in technical training as a spur for investment.

A delegation from the country, including deputy president Phumzile Mlambo-Ngcuka, addressed industry members at the South African embassy in London on Monday, with Ms Mlambo-Ngcuka insisting that information and communications technology (ICT) was not merely "flavour of the month" in South Africa.

"We're not necessarily trying to compete with the cheapest localities in the world," said Mandisi Mpahlwa, a South African trade and industry minister, at the event. Mpahlwa pointed to recent investments by Barclays and Vodafone as examples of the "fair balance between cost and quality" the country could offer.

Dr Ray Ngcobo, director of the department of trade and industry's strategic competitiveness unit, also insisted that South Africa was "not competing with India here" but went on to say that the South African Government was introducing one-off investment grants "in order to close the gap between ourselves and India and the Philippines".

South Africa's government sees foreign investment in support centres as a key opportunity to train tens of thousands of unemployed people — Virgin Mobile's call centre there is entirely staffed by the formerly unemployed, for example — and is offering hefty tax breaks and training grants to companies willing to outsource to South Africa within the next five years. The key areas being targeted are banking, insurance, telecommunications and IT support.

A range of tax incentives is being offered, which adds up to thousands of pounds per employee.

IBM's South African head of global technology services, Mteto Nyati, said the company's South African integrated delivery centre (IDC) — which already handles IT services such as remote client fixing, remote LAN/network services, remote server management and software distribution — was preparing to move to "higher value services", such as taking over procurement for Unilever. Shell is also setting up a call centre in the country to offer support to its Belgian, Netherlands and Luxembourg customers, said the oil giant's global customer services programme director, Julian Davis.

India itself is seeing a move to higher level services, with Sony Europe recently outsourcing some core IT development services to Satyam's Bangalore centre. However, David Laurie, chief executive for internet provider group Brightview, said his company had decided to relocate its call centre to South Africa 18 months ago "having struggled in India for the best part of two years", and viewed the results as a success.

Laurie cited a "similar culture to the UK" and nearby time zones as two reasons for this, and said Brightview had been "impressed with the advance in IT skills" in South Africa. He also suggested that UK customers were more comfortable talking to someone with a South African accent than someone from India — a view that was repeated by more than one participant at the conference.

One factor that had been holding companies back from outsourcing to South Africa had been the costs resulting from state incumbent Telkom's monopoly on telecommunications. However, this sector has recently been deregulated, and Telkom's John Joseph suggested this could eventually lead to even lower telecommunications costs than India.

Perhaps a larger negative factor for South Africa is the country's high rates of violent crime. Brian Whittaker, chief executive of the Business Trust (a collaboration between government and industry) insisted that the issue "will be systematically addressed in the coming months". However, Mpahlwa conceded that crime could seriously damage the country in the near future, if it stops people coming to the 2010 football World Cup.

Another area that could see significant growth in BPO outsourcing is Eastern Europe, according to a recent study by McKinsey and Co.

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