Download discussion document for the ict smmes workshop

DISCUSSION DOCUMENT
Unlocking the potential of ICTs SMMEs
Birchwood Hotel & Conference Centre, Boksburg, 23 - 24 March 2015
Discussion document for the ICT SMMEs workshop – March 2015
1.
Contextualising ICT SMMEs in South Africa
1.1.
Defining the scope of ICT SMMEs
As defined in the National Small Enterprise Act no.102 of 1996, small enterprise' means a
separate and distinct business entity, together with its branches or subsidiaries, if any, including
co-operative enterprises, managed by one owner or more predominantly carried on in any
sector or subsector of the economy mentioned in column 1 of the Schedule and classified as a
micro-, a very small, a small or a medium enterprise by satisfying the criteria mentioned in
columns 3, 4 and 5 of the Schedule;
Schedule
Column 1
Column 2
Column 3
Column 4
Column 5
ICT Sub-Sector
Size of class
Total number of
Total Turnover
Total Gross
full-time paid
asset value
employees
(excluding fixed
property)
Electronics
Medium
200
R51m
R19m
Manufacturing
Very small
50
R13m
R5m
micro
5
R0.20m
R0.10m
Communications
Medium
200
R26m
R6m
(ICTs)
Very small
50
R3m
R0.60m
Micro
5
R0.20m
R0.10m
In respect of ICTs, small enterprise (hereafter ICT SMME) refers to businesses carried on in
the
Information
and
Communications
Technologies
(Broadcasting,
Postal
services,
Telecommunications and IT), including electronics manufacturing fulfilling the criteria above.
These three key sub-sectors, each with unique properties and needs viz. the electronics and
hardware manufacturing sector (Telecom equip, information equipment, Broadcasting
equipment); the software, local content and applications development sector; and the ICT
services sector.
1.2.
ICT SMMEs in South Africa
There are two approaches to ICT SMMEs in South Africa.
The first approach relates to the
adoption of ICTs by any other business to improve its business process for efficiency and
Discussion document for the ICT SMMEs workshop – March 2015
increase productivity.
These business entities may not necessarily be in the ICT related
environment. The second approach covers the nurturing and harnessing of enterprises in the
ICT sector. Over the years, the emphasis in the DTPS as a custodian of ICTs in the Republic
has been on ICT adoption as part of building an inclusive information society concomitant with
the World Summit on the Information Society (WSIS) principles. To this end, a number of small
enterprises exterior to the ICT arena including, House of traditional leaders/traditional
authorities, have been helped with ICT connections.
The second approach is beginning to gain momentum as a result of government prioritising the
SMME sector fundamentally for economic growth. The importance and need for growing the
sector stems from the potential it has in bridging the gap between the first and the second
economy, its potential to reduce inequality, employment creation, economic empowerment,
transformation and innovation.
Despite the existence of a solid policy framework and various support measures in South Africa
in pursuit of small enterprise development, the (SMME) sector remains vulnerable. In the ICT
sector, many of the small enterprise organisations averages 10 years of existence, but their yet
to reach business maturity. Their growth has been dwarfed. Their competitiveness remains
low.
Failure rate among start-up is very high. This can be attributed to a number of factors,
including:

Most SMMEs still use old-fashioned technologies of which most of them has no access
to testing facilities and promotion of innovative ideas.

Lack of access to markets,

inadequate business and technical and capital.
While government has implemented various support measures over the years, the situation has
not been considerably turned around due to the broad and blanket nature of the support. The
broad and blanket nature of the support can presumably be attributed to lack of information
about the sector in terms of its size, location, business activities and the scale thereof, peculiar
challenges. As a result, the understanding is broad, and fails to account for the uniqueness of
this sector. Not only has this resulted in a blanket approach to support, it creates a skewed
picture of SMMEs environment as the data is more generalised, thus making it impossible to
measure the impact of the support measures.
The scattered nature of sector association has
Discussion document for the ICT SMMEs workshop – March 2015
not helped in the sense that not only does it reduces the negotiating power to lobby government
or private sector. The critical data about the sector is not centrally located as each association
has its own data. The difference in the data makes unreliable.
As an example, although
Socikwa & Sunker have estimated an existence of 6 737 are operating in the ICT sector in
2005, accounting for approximately 1.6% of the total formal small enterprises in South Africa in
2008, no data exists regarding the size, location, economic activities, emerging trends, and
peculiar challenges for these SMMEs.
Having reliable data regarding SMMEs is critical given the Global Entrepreneurship Report, nine
out of ten SMMEs businesses fail in the first year of operation”. This will help not only in tracking
the failures and risks associated with SMMEs in each sector, but also in measuring the
country’s strengths. From a support perspective, this will further help channelling more efforts
and resources in those sectors where SMMEs are likely to survive, thus minimising risks
associated with SMME development.
Successful countries such as South Korea have
demonstrated this to a certain extend. As Robert McIntyre (2001: 1)1 concluded, the Small and
Medium Enterprise sector carries great hopes and great burdens in the evolution of all the
transitional economies.
The ICT SMME environment is one of those subsectors that are immensely affected by this
generalised approach. With government’s priority towards SMME development as evidenced
by the establishment of a specific ministry for small enterprise development, efforts should be
made to focus on different sectors. With the South African economy in a stagnant growth rate,
the 5% target by 2019 somewhat gradually diminishing, ICT sector, as Korea, Japan, Singapore
and Hong Kong have shown, can be critical levers to jump-start the economy and propel it to
rapid growth.
This conclusion is based on the vastness and limitless opportunities within the ICT sector
provides a fertile ground for SMMEs incubation and development.
The sector has multiple
business activities consisting of the hardware, software, networks and media for the collection,
storage, processing, transmission and presentation of information (voice, data, text, images), as
well as related services which if harnessed can create opportunities for the unemployed youth in
the country.
“The role of Small and Medium Enterprises in Transition: Growth and Entrepreneurship”: World Institute for
Development Economic Research: Research for Action 49.
1
Discussion document for the ICT SMMEs workshop – March 2015
2.
TRENDS & EMERGING ISSUES
2.1.
Market overview
The last few years has seen the proliferation of emerging and smaller enterprises across the
entire ICT sector.
Like anywhere else, the South African ICT sector is dominated by
conglomerates who subcontract some of their services to the SMMEs.
In Telecom & IT, the number of independent services providers (ISPs) has increased
considerably.
These numbers are set to increase with the expanded rollout of Fibre for
Broadband. Broadband is rapidly changing the market. According to IDC, overall IT spending
is expected to exceed R143 billion in 2015. The IT market will “remain buoyant and continue to
grow during the next four years. IT investment in telecoms vertical is expeted to total R15
billion. Telecoms players are also faced with high competition and low growth in their traditional
business areas”. Data centres, cloud computing and disaster recovery services are the new
business expansion areas.
Broadcasting is equally experiencing explosion with new licences being issued both on pay and
Free to air platforms, thus providing opportunities for SMMEs in the content production
environment. Over the Top TV (OTT) is taking shape as made possible by broadband rollout.
Actually the long existing boundaries between Broadcasting and Telecoms seem to be rapidly
disappearing as more TVs get connected to Internet.
South Africa has a comparable policy/regulatory environment in the world to support SMMEs
and cooperatives.
2.2.
Electronics Manufacturing
The foundation of SA’s electronics industry has historically always been the public sector. In the
pre-1990 era, for example, the demand for electronics in the defence industry far outweighed
the requirements for power and security systems, with the combined demand for electronics
from Armscor, Telkom (and the Post Office) and Eskom accounting for as much as 75% to 85%
of the local electronics market. This has provided a firm foundation for the electronics
manufacturing sector in the current era. Today South Africa has world-class engineering
facilities, an internationally accepted system of standards and testing, a base of capacity and
Discussion document for the ICT SMMEs workshop – March 2015
capabilities including skills that can be optimised in the electronics industry, such that the
electronic sector (excluding software) contributes in the region of 12.5% to South African GDP.
In past years, the South African Electronics Manufacturing Industry has been shrinking due to
pressure from imports of cheaply made and, in some cases, dumped electronic goods. This has
resulted in a loss of South African jobs, the closing of assembly lines and production plants. 45
A study by Access Market International on the Scope of the Electronics Industry in the Western
Cape (2005:16) stated: “Even though the total electronics industry in South Africa is growing,
the overall manufacturing of high volumes of electronics components and products is on the
decline. The reason for this is the small size of the domestic market, which does not warrant
investment in manufacturing capacity”.
The small domestic market and low levels of international market presence have resulted in a
reduction in South Africa’s manufacturing capacity in this industry. South Africa’s major
electronics industries are predominantly centred in Gauteng, the Western Cape and KwaZuluNatal. Based on export contribution, the Western Cape is the second-largest producer of
electronic products in South Africa and contributes approximately 22% of total output.
The majority of ICT products used in the country are imported from abroad. There is therefore a
need to rekindle local manufacturing of these goods.
The industry is characterised by a number of weaknesses, including:

A relatively weak manufacturing and design base.

Insufficient skills, particularly qualified engineers.

Weak and fractured industry associations.

Dominance of foreign brands in local market.

Lack of progress in the launch of new pay TVs by licensees.
The following current investment opportunities in the South African electronics manufacturing
sector have been identified:

Access control systems and security equipment;

Systems and software development in the banking and financial services sector;

Silicone processing for fibre optics;

Integrated circuits;
Discussion document for the ICT SMMEs workshop – March 2015

Solar cells; and

Electronic security devices and associated services, as well as software and peripherals.
In addition to the above, areas for future growth in the manufacturing industry include:

Set top boxes;

Low cost tablets and mobile phones.
Manufacturing is a capital intensive business. Mass volume products are required to sustain the
industry. Lessons from Brazil, China and the US have demonstrated the importance of a
sizeable domestic market if the local electronic industry is to be sustainable. Many industry
players have found it difficult to penetrate foreign markets due to protectionist industrial policies.
Respondents to the Green Paper released earlier by the DTPS have suggested various
measures to facilitate growth, including:

Bringing together role players (beyond SITA and GITOC) to support the manufacturing
of low cost devices such as tablets and smartphones as well as mobile-cloud platforms
that are relevant to local conditions (affordable, rugged and perhaps running an Open
Source Operating systems) which could be sold across Africa and other developing
markets;

Supporting and expanding a national electronic manufacturing base;

Using the aggregation of public sector demand to create economies of scale for the
production and purchase of locally manufactured devices,

Use of Special Economic Zones to provide infrastructural needs for emerging
enterprises. Similar approaches have been adopted in Singapore, India, and Philippines
to spur electronics manufacturing and software development.
2.3.
Transformation of the sector
In South Africa, transformation is a critical policy goal to achieve equal participation in the
economy. Transformation is not an issue of race alone. It has to be looked at from a broad
industry perspective in terms of ownership, decision-making, business practices, staffing and
products, and the society within which it operates. Statistics SA shows that employment of
previously disadvantaged persons in ICTs has progressed relative to the period before 1994.
With the exception of postal, the broader ICT sector represents ownership by historically
Discussion document for the ICT SMMEs workshop – March 2015
disadvantaged groups (black, women, youth and people with disabilities) as required by the
Electronic Communications Act of 2005. The ICT Charter Code has been finalised, although the
ICT Council, intended to oversee implementation and measure progress, has yet to be set up.
Government has committed to set aside finance to support the Broad-Based BEE process and
has revised the mandate of the National Empowerment Fund (NEF) to ensure the effective and
efficient utilisation of resources. Notwithstanding the above achievements, the sector is still
lagging behind in terms of reflecting the demographics of the country.
3.
Objectives of the workshop
The workshop is part of an ongoing exercise by the department to engage the sector with the
purpose to understand the nature of the ICT SMMEs and the kind of support required to make
them competitive.
The workshop follows the Request for Information (RFI) Gazette released earlier in July 2014
soliciting information from the ICT SMME sector in terms of their size, nature of their business
activities and exact challenges they face with the intention to achieve the objectives of the
Electronic communications Act (no.36 of 2005) set out in section 2(p) relating to developing and
promoting SMMEs and cooperatives so as to accelerate black economic empowerment,
transformation of and unlock the potential of the sector for rapid economic growth.
In addition the workshop provides an opportunity for the sector to recommend to the
Department ways to improve the performance of the sector. The information collected at this
workshop will supplement the one gathered through the RFI. A comprehensive Baseline report
on ICT SMMEs with set of recommendations will then be compiled.
4.
Issues for Discussion
In this era of economic downturn characterised by negative economic growth, unemployment
and increasing debt, greater efforts must be made to boost the economy. The ICT sector
has the potential to do that, especially if SMMEs are used as a vehicle for this purpose.
In simple terms, ICT SMMEs have the potential to be used as business cycle absorbers
and bring about rapid economic recovery.
The following issues will be discussed:

Market issues effecting ICT SMMEs,
Discussion document for the ICT SMMEs workshop – March 2015

Turning South Africa from being a net importer of ICT products,

Transformation of the ICT sector for SMMEs benefits,

Unlocking the potential of electronics manufacturing,

Improving measures for supporting ICT SMMEs,

Subcontracting issues,

Measures for ICT SMME maturity,

Leveraging on public entities in the ICT sector to spur SMME growth.
5.
The Nature of the workshop
The discussions at the workshop will take two formats:
Plenary/Panel discussions: This will happen through individual or organisation presentations
and panel discussions on the topics assigned.
Breakaway sessions: The workshop will have 3 breakaway groups2:

Group I: Telecoms & IT

Group II: Postal sector

Group III Electronics Manufacturing
In dealing with the issues outlined in paragraph 4 above, each group will discuss using the
following the format below:
5.1.
Sector Overview,
5.2.
Issues confronting the sector, including competition and regulatory
5.3.
The challenges facing the sector,
5.4.
Recommended ways to deal with these challenges,
5.5.
Other relevant issues for consideration.
The conclusions and recommendations will be scribed and presented to the conferences.
6.
Outcome(s) of the workshop
2
Broadcasting sector was part of this, but it had to be withdrawn following the Presidential Proclamation transferring
it to the newly-established Department of Communications.
Discussion document for the ICT SMMEs workshop – March 2015
Two sets of activities are set to be undertaken at the workshop so as to obtain information from
the conference:

a questionnaire used in the RFI gazette will be distributed for obtain information relating
to of their size, nature of their business activities and challenges facing the sector. This
will provide opportunities from those entities who might have missed the RFI to submit
the information,

A number of issues relating to ICT SMMEs environment and support will be discussed
either in plenary or in breakaway groups. The conclusions from these discussions will
be contained in a consolidated conference report for consideration in finalising the
Baseline report on ICT SMMEs which will recommend measures to support the sector.
This report will serve as a base to develop a strategy for government intervention into
the ICT sector for approval by Cabinet.
7.
The List of speakers:
Rosey Sekese: Director-General of the Telecommunications & Postal Services
Hon. Dr. Siyabonga Cwele, Minister of Telecommunications and Postal services
Hon. Lindiwe Zulu, Minister of Small Business Development
Hon. N.R. Bhengu, MP Chairperson: Portfolio Committee on Small Business Development
Mr Xolani Qubeka, Chief Executive Officer: Small Business Development Institute
Lance Manala: Managing Director, Maredi Telecoms
Muzi Makhaya: Founder and Chief Executive Officer, ABT
Mr Reshaad Sha: Chief Strategy Officer, Dark Fibre Africa
Thabo Lehlokoe: Chairman, Seemahale Telecoms
Dr. Mashilo Boloka, Director, Enterprise development, DTPS
David Wang: Vice President of Eastern & Southern Africa Region: Huawei Technologies
Loren Braithwaite-Kabosha: Chief Executive Officer, SACF
Joshua Motjuwadi: Managing Director Government Solutions, Altron Bytes
Keith Thabo: Chairman, NAMEC
Xolani Qubeka: Chief Executive Officer, Small Business Development Institute
Calvo Mawela: Head of Regulatory, Multichoice
Sydney Tshibubudze: Chief Procurement Officer, SITA
Ian Russel: Chief Procurement Officer, Telkom
Adrian Dubru: MTN
Tandie Nogxina: SAPO
Discussion document for the ICT SMMEs workshop – March 2015
Lynda Marthinus: Executive Head: BBBEE and Transformation, Vodacom
Marumo Modiba: CPIC
Msizi Wella: Coordinator for Small Business Education programmes, SARS
Bongani Ntombela: SABS
Mr Sibongile Makopi, DDG: DTPS, SOC Oversight Branch
Discussion document for the ICT SMMEs workshop – March 2015
Annexure
FORM A: SPECIFIC INFORMATION REQUIRED
1. Company Name
2. Number of years in operation:
3. Sector: (e.g. Broadcasting, Postal, electronic manufacturing):
4. Nature of business:
5. Describe the business activity in brief:
6. Area of operation:
7. Major clients to date:
8. Partnerships (local and/or global)
9. Number of employees:
10. Annual Turnover:
11. Challenges:
12. Nature of support required:
13. Additional information:
Discussion document for the ICT SMMEs workshop – March 2015
Discussion document for the ICT SMMEs workshop – March 2015