April 2008

USA's economic woes to trickle over into SA?

The economic downturn affecting large parts of the globe, including the USA, is definitely going to have an impact on IT spending in 2008 - as well as on hiring, said Karen Geldenhuys, managing director of Pretoria-based IT recruitment company, Abacus Recruitment.

"South Africa is not going to be immune to this spending downturn, especially considering that we are facing our own challenges, including a high inflation environment, high interest rates and critical electricity problems."

Spending on IT goods and services is expected to grow to $1.7 trillion (US dollars) this year - only six percent up, and some way off the 12% increase seen last year.

Except in China, all of the world's top IT markets (the US, Japan, Germany and the UK), will see spending growth fall to single digits. This is according to Forrester Research.

"Until the recent turn of event on the local economic front, South Africa might have escaped some of this downturn. But some economic analysts, including trade unions, are starting to say that the country might be facing a recession. We are arguably going to see a similar effect on IT spending. It is unlikely that IT spending in SA will see anywhere near double digit growth.

"Even though we have a skills shortage, I doubt local companies are currently going to be in a hiring mood. Those posts that are open - and which cannot be filled due to the skills shortage - will stay open. But where companies might have employed, to fill other posts, they might now very well err on the side of caution by putting a 'hold' on more general hiring. While this is not all doom and gloom, the fact that the government is not going to make its growth forecast of 6% means that it has no chance of halving unemployment by 2014. In fact, analysts are predicting that the economy will slow to a 3% growth this year, or worse." Although the USA will remain the world's biggest technology spender, it has been 'under-performing' when compared to other IT investors - especially China and India, claims Forrester Research.

It is only in software that the US remains dominate, with predictions pointing to Asia Pacific overtaking when it comes to the global market share of computer hardware, as well as becoming a serious rival in the communications equipment stakes.

But, according to a press article in UK-based on-line technology publication, www.contractorUK, these markets will be the most hardest hit by the US IT spending slowdown, in contrast to stronger growth in software - a market in which the US still controls an almost 50% stake.

Due, in part, to its economic slowdown, the US will see its grip loosen in the IT consulting and outsourcing markets. It is expected that its 31% share will be pressurised by Europe (28%) and Asia Pacific (19%).

"There used to be an old economic-focused saying; '...if the US catches a cold, the whole world sneezes....'. "This is still true to a large extent. But, over the past 10 years, the impact of its cold has been less severe on the rest of the world. China and India are making themselves felt in a global economic sense."

But, said Geldenhuys, the US still remains the largest single market for IT goods and services; "so the global market is still heavily affected by what happens over there".

"Although South Africa is currently facing a malignant economic environment, some economists are predicting a more friendly economic situation towards the end of the year. Citibank, the US's biggest banking group, has stated that it expects interest rates to start dropping during the fourth quarter of the year. Even if this does not happen, it is likely that we will start seeing the inflation rate drop within the SA Reserve Bank's 3-6% band by then - or by the second quarter of 2008. This means that the Reserve Bank governor may be more prone to lowering rates.

"But, in the meanwhile, employment is going to be affected as we battle with tough economic conditions, both at home and abroad."