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ITU Telecom Africa – Reaching the unreached

Haru Mutasa, Highway Africa News Agency, reporting from Cairo

Ten years ago a Japanese man, on his first visit to Egypt, asked himself why there were boomerangs in Pharaoh Tutankhamen‘s collection at the Egyptian Museum in Cairo. The question puzzled him so much that when he returned to Japan he perused encyclopaedias for the answer to his question but found none.

A couple of years later, that same man, using a popular search engine on his computer, looked up the answer to his question and was left more than pleasantly surprised. “The boomerang is not unique to Australia,” he said, “It was used in several parts of Africa and even India back then.”

That man was Yoshio Utsumi, the current International Telecommunications Union (ITU) secretary general. Addressing a large delegation at the official opening of the sixth ITU Telecom Africa conference in Cairo last month, Utsumi hammered home the message that “Internet Communication Technology (ICTs) has the potential to forever change the whole world if we take the right course of action”.

This was the rationale behind the first phase of the World Summit on the Information Society (WSIS) in December last year – a rationale that will be carried forward to the second phase in Tunisia next year and was implemented at the conference in Cairo.

The Cairo conference showcased technology that could be used to improve access to African people, while the forums and debates allowed delegates to discuss possible projects to achieve this goal.

Egypt’s Minister of Communication and Information Technology, Dr Ahmed Nazif, echoed Utsumi and called on delegates at the conference to strive for an e-enabled and e-knowledgeable African society.

“Problems in Africa are severe and difficult to overcome but success stories are evident,” he said, “We must support Africa’s development through active participation. All African countries are qualified to reach this goal. But to reach it we need to work together to turn the digital gap into a digital opportunity.”

The two delegates, along with Egyptian Prime Minister Dr Atef Ebeid, officially celebrated the launch of the ITU Telecom Africa by signing a beautifully created papyrus parchment – an ancient Egyptian paper still used in some sectors of society today.

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Posted in the category: Insight

Technical trends: Africa telecoms faces new connection challenge

By Guy Berger, Highway Africa News Agency, reporting from Cairo

Egypt’s hieroglyphics are among Africa’s oldest communications, and it is fitting that Cairo was the setting of a landmark event about 21st century ways of communicating on the continent.

But the Africa-wide summit convened by UN agency, the International Telecoms Union (ITU), also needed to give impetus to a lot more growth – including to Internet access.

There was much for the expected 10 000 participants to party about in Cairo. New technology and falling costs have seen extraordinary growth in telephony in Africa, and more is to come. In mobile connections, which are now double those of fixed lines, there are almost 52 million cellphones around the continent.

Said ITU official, Michael Minges: “Mobile technology is the Information Society in Africa.” Yet, there is also a long way to go to reach the 820 million inhabitants of the continent – and to reach even the majority who do have telephone connections but no Internet access.

Telecom connections across the continent are vital for people talking to each other, but real participation in the Information Society means they also need access to follow-on services such as Internet e-mail and the world wide web – and to high-quality access at that.

The ITU said that, though the number of Internet users in Africa rose by almost a third between 2002 and 2003, the bigger picture was that this meant there were now just one person in 50 on the continent who is “wired”. The focus of the Cairo conference was on growing basic telephone services further, whether through cellular and wireless systems or through cables and copper wires. But the ITU also reminded delegates that Africa faced an even bigger challenge – the need for fast-speed and “always-on” connections to the Internet.

Known as “broadband”, this rich connection capacity was needed, said the ITU, for activities like tele-medicine. In this scenario, doctors in different geographical areas, for example, could work together in real-time through an inexpensive videoconference discussion of a patient’s x-rays. Around the world, studies also show that when people have access to affordable broadband, they use the Internet a whole lot more – because waiting time is cut, and they can also access audiovisual content without problems.

The “broadband” scenario raises the likelihood that users will be charged more for the amount of data (voice, images, etc.) coming through their connection, rather than for the minutes they spend using the link. That’s another way a development that starts with telecoms triggers models that are different to conventional telephony traditions.

The Cairo summit came in the context that “broadband” technology had added another level to the digital divide – leaving Africa even further behind than it has been.

The big divide nowadays is not only about access to services for basic telephony, and not only about access to the Internet. It is also becoming one about the quality of access to the Internet – between who has broadband access . and everyone else.

According to the ITU, Africa has very little broadband, and what does exist is mainly limited to the relatively few places where there are already fixed lines. The result is that citizens of Luxembourg (450 000 people) have more broadband bandwidth available to them than the 820 million people of Africa put together.

Because of this, there was interest in Cairo in wireless methods of spreading broadband across the continent. The ITU for one believed that, because of the limited fixed line infrastructure, “Africa’s broadband will be driven by alternative access methods” – and in particular, wireless. It suggested that wireless broadband services in Africa could and should be allowed to kill several birds with one stone – allow for voice, data and Internet services. This contrasts with much of the continent where some companies are allowed to do voice calls only, while others may offer only
Internet and are banned from providing voice.

The technology treated by the ITU as the most promising was WiMax, which can carry 70 megabits per second over a radius of 50 km. Satellite services could play a role in linking WiMax points together and into the broader Internet, although they were not a major point of discussion in Cairo.

WiMax Internet access does not necessarily mean mobile use – in the way that a cellphone user can keep a call moving from cell to cell. But there are technologies, known as 2.5 generation, which do allow for a degree of Internet connection, even if not quite at the full broadband level. A factor limiting the growth of information on the Internet in the First World has been the fact that no one wants to pay for content online. However, the ITU pointed out that people were generally used to paying for
telephone services, and that this business model could be the basis for viable information businesses making Internet content available via cellphones.

In Korea, more than one in three people use their cellphones to get information from the Internet, especially for entertainment advice and even viewing movies. “M-commerce”, when a cellphone serves as a credit card, with the bill coming onto your phone account, is also taking off in Korea.

The ITU said that “Africa’s robust growth leads that of Latin America and the former Soviet republics, but its jaw-droppingly low penetration rate still leaves a yawning void. Under 6% of all Africans can access telecommunications of any kind.”
Africa’s robust growth leads that of Latin America and the former Soviet republics, but its jaw-droppingly low penetration rate still leaves a yawning void. Under 6% of all Africans can access telecommunications of any kind.”If Cairo adds momentum to telecoms growth around the continent, and to broadband Internet as part of this, it will turn out to be an important milestone in tackling the digital divide.

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SMEs still love the PC

The PC, along with consumables like ink cartridges, paper and disks, remains the most important item in budgeting for IT purchases among SMEs in South Africa, according to SME Survey 2004, a project that researched the role played by government, information technology and financial services in small and medium business in South Africa. Conducted with the backing of Hewlett-Packard and Standard Bank, the research involved interviews with 2919 SME business decision makers.After PCs and consumables, which were ranked as the most important item in the IT budget by 51% of respondents, software runs a close third, followed by servers and peripherals, such as printers and scanners. Laptops remain a distant priority, in eighth place, ahead of only PDAs (personal digital assistants) and wireless technologies.

“The findings confirm international research on the South African market, which shows PCs outselling laptop computers by a ratio of almost 4 to 1,” says George du Plessis, SMB Segment Manager at Hewlett-Packard South Africa. “Laptop sales may be growing faster than any other format, at 73% for the first quarter of this year, but desktop PCs still grew at 51%.”

The low ranking of new mobile technologies is an indication of the fact that SMEs operate in the here-and-now, with budgets oriented almost entirely to practical demands, rather than the nice-to-haves, the unknowns, and the cutting edge technologies.

“The picture is very different in the enterprise environment, where corporates understand that these technologies have the potential to transform businesses,” says Du Plessis. “But SMEs tend to stick to what they know best.”

If SMEs know what works for them, they also tend to know what’s good for them. The number of SMEs connecting to the Internet via ADSL has increased tenfold over the 2003 findings, which is understandable given that the technology had just rolled-out at that stage. Despite this, ISDN has also increased its proportion of connectivity. The big change has come in SMEs moving away from dial-up to these more high-speed options – falling from almost two thirds to a third of respondents.

SME Survey 2004 confirms the finding in the 2003 survey that the proportion of companies spending 1% or more of turnover on IT would increase by 1% in 2003. However, this year’s survey shows SMEs budgeting to spend exactly the same proportion of turnover on IT in 2004 as last year.

The news is not necessarily bad for the IT industry, however.

“SME turnover on the whole tends to rise in line with national growth figures,” says Spiro Georgopoulos, Director: Business Banking at Standard bank. “So while the proportion of the pie going to IT may not grow in 2004, as the pie gets larger, the IT industry will benefit proportionately.”

Du Plessis agrees, and points out that competitive advantage within the IT industry is the key to growing market share of SMEs’ spending: “One of the reasons for HP’s leadership position in the overall IT market is our end-to-end offering to SMEs, from PCs to consumables to peripherals.”

In financial services, the 2004 survey confirmed last year’s finding that Standard Bank remains by far the most popular bank for business purposes among SMEs.

About half of all respondents were willing or able to reveal the proportion of procurement that is made from BEE companies. And more than half of these respondents, in turn, reported zero or less than 10% of procurement going to
BEE companies.

This is a clear indication that SMEs in general have not incorporated BEE procurement into their policies and procedures – even where they are BEE companies themselves.

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Telkom Internet set to dominate dial-up

What it couldn’t do through the courts, Telkom is now attempting to do through good, old-fashioned competition: dominate dial-up Internet access in South Africa. This week’s annual results were highly revealing not only for the dazzling financial performance Telkom has turned in, but also for the trend lines that show its success at moving into fields some would regard as outside of its ambit.In 1996, Telkom attempted to use the courts to have all Internet Service Providers (ISPs) in South Africa declared illegal, or at least to have them meet regulatory requirements that could have shut down the industry. Telkom lost the battle, although it never conceded that the legal battle was over.

It was a mystery why Telkom should take such an antagonistic view towards what were some of its best customers, and those internal politics have remained an enigma.

In the meantime, however, they tried a far more effective strategy, but one that raised valid protests that they were competing against their own customers: they started an infrastructure provisioning ISP, SAIX, and a dial-up ISP, Intekom. The latter was always something of a maverick, with its own culture and a solid and loyal customer base, but one that was never a serious challenge to larger ISPs.

Then they launched Telkom Internet, and absorbed Intekom back into the fold and back into the corporate culture. Now they went the obvious route: using their massive billing run to market the ISP to the phone-using masses. A year ago, they had 98 000 customers on their books, making them the fourth largest dial-up ISP in South Africa. It was obvious, then, that they were going to challenge number two and three, Tiscali World Online and Absa Internet, before long. And so they did.

Their latest annual results show a huge 44% growth for Telkom Internet, to 142 000 subscribers, making them the second largest ISP in the country. And, while MWEB still enjoys a substantial lead, they are anxiously looking over their shoulders. Two years from now, the unthinkable may become reality: MWEB may become number two in the dial-up market.

That does not, of course, make Telkom the best ISP, but their price advantage is enough to deflect attention from their lack of a content offering and the tremendous value-add that MWEB builds into their packages. At the same time, of course, Telkom is making hay while the SNO fails to shine. In the absence of a second network operator, Telkom happens to control many of the fixed costs faced by ISPs, which prevent them from competing effectively on price with their own telecommunications provider.

Obviously it’s not fair. But using unfair business advantages to destroy the competition is a step up from using the courts. The flip side of the coin is that, when Telkom no longer has the monopoly, it should expect no favours from the competition.

  • Arthur Goldstuck is editor of The Big Change and managing director of World Wide Worx. He can be contacted by e-mail on

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Can government innovate?

GLENDA WHITE, executive director of the Centre for Public Service Innovation, considers the challenge of transforming government into an innovative institution.

Dusting down government and making sure it is built to deliver its best is one of South Africa’s challenges. We certainly aren’t alone in this. Whether rich or poor, all governments face the never-ending quest of sustaining or improving standards of living, through taking a long hard look at their operations.

Developing countries such as South Africa have the added responsibility of getting their public-sector institutions in the best possible shape to reduce poverty and meet basic needs. It is a matter of ensuring that democracy and respect for human rights are a reality: government processes and the customer interface have to be efficient and effective, so that citizens have access to those services to which they are entitled, and get value for tax-payers’ money.

The irony in South Africa is that this poverty and desperate need stand alongside the latest in technological gadgetry and global thinking. But this contradiction also carries the solution. Using the best of globalisation creatively, to transform public sector institutions, is the way to step up the public sector’s delivery capacity and service quality.

Innovation is the key: it takes creative and clever thinking to enable government to do more and better, without using more of the limited resources available to it. This entrepreneurial thinking includes the invention of new products and services and new approaches to the application of technologies and tools.

The Centre for Public Service Innovation (CPSI) is one of the many projects initiated by government to improve its effectiveness and efficiency through innovation. Its formation in 2001 followed government’s recognition that innovation is not an option, but a necessity. This Section 21 company is a private-public sector partnership that reports to the Minister for Public Service and Administration.

The CPSI devotes its days to finding innovative ways of improving service delivery to South Africans, and to broaden access to these services. It recognises that such improvement depends on internal-systems alignment and better customer interface, not only through technological innovation, but through non-technological solutions too.

The CPSI Public Service Innovation Awards are an extension of the day-to-day work of the CPSI. Now in their second year, these Awards are an exciting and meaningful way to find original ways to upgrade the way government works. The Awards are a platform for finding and nurturing innovative practices, projects or initiatives within the public sector.

Whether initiated within the public or private sector, by individuals, teams or institutions, innovations that challenge conventional practice with the aim of improving services to the public, are celebrated by the CPSI Public Service Innovation Awards. Initiatives that make for a more effective and accountable government are targeted particularly.

The judges are on the lookout for service delivery improvements that extend democracy and address economic and social exclusion. These may be through policy, institutional processes, private-public sector partnerships and service-delivery mechanisms.

The Awards focus on innovative initiatives that are sustainable. Since the public sector is largely rule-bound and procedural it demands energy and effort to implement new concepts. Unlike the private sector, public-sector systems and structures are less able to cope with the implementation of new systems.

The Awards programme goes beyond simply acknowledging these innovations. The CPSI will use the programme to develop lasting relationships with awardees, to support their future work. In walking this path with the identified innovators, we at the CPSI will help find ways that capture learning, establish partnerships with other local and international programmes and develop ways to influence government-policy decisions.

The CPSI acknowledges that extending innovative practices in the public sector is easier said than done. Across the globe public services are known for being inflexible, rule-bound and focused on compliance. Transforming these structures into more efficient ones, that can meet changing needs, takes a change in culture. Government staff and structures need to become more flexible, less risk-averse, capable of identifying shifting needs and solution-orientated.

While not impossible, such a process of change towards a culture of innovation is a slow, incremental one that has to be supported by programmes of change management, skills development and vision building.

The vision-building exercise requires a comprehensive policy statement on how an innovative government, living with globalisation and poverty, should look and behave. This vision helps in the identification of the needed programmes and of the type of behaviour that has to be rewarded.

An implementation strategy is essential in overcoming the obstacle of artificial institutional divides: putting innovative practices in place would have to cut across various government departments and bodies.

Managing people through this process would include an incentive and rewards programme, to motivate them to behave in a way that may contradict existing practice. And, through a skills-development programme, people are equipped with the competencies to manage the introduction of innovative behaviour and systems into government.

The monitoring and evaluation of new innovative practices in state structures, such as the initiatives identified by the Awards, are essential. Measuring the impact of these efforts will give implementers and policy-makers a clear idea of their value to government and to society in general.

Given the scale of the public sector and the scope of its impact on the nation, getting it into shipshape condition is both a continued task and an urgent one. Where these structures are capable of detecting changing and varied need, and focused on meeting these needs, their output will be good.

The thinking within the CPSI is that a healthy and productive government is one that sustains the energy of the nation. A lively and creative nation is one that prospers.

Glenda White is executive director of the Centre for Public Service Innovation (CPSI). She can be contacted by e-mail at or phone her on 012 672 2499.

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Technical trends: Mining sector talks innovation

WADIM SCHREINER, managing director of Media Tenor, analyses the findings of the company’s survey into media coverage of innovation.

The South African mining industry is the sector that communicates most frequently about innovation, while ‘giant’ unlisted companies get more media coverage on innovation than JSE companies, according to the Media Tenor/Idea Engineers Innovation Media Survey. The survey delivers an analysis of all statements made on JSE-listed companies, non-listed ‘giants’ as well as the CEOs of listed and non-listed companies in the South African media.

Highlights from the Innovation Media Survey include the following findings:

* Of a total of 270 818 statements made in the media on corporate organisations or industries, 55 733 featured the mining industry (21%).
* This was followed by the banking industry (29 880 statements or 11%) and retail (19 788 statements).
* IT (19 260), insurance (16 574) and financial services (15 574) followed in positions four to six.

Interestingly, industries such as the IT and automotive industries, which both rely heavily on new technology and innovation, did not receive higher than average (1% of total communication) coverage.

The survey highlights the fact that very often successful media coverage of innovation requires a strong driver in the form of a visibly active CEO, as in the case of Sasol. The survey also flags issues around the manner in which innovation, research and development (R&D) and sustainability topics are reported by companies to the media.

R&D is generally a very large investment, and companies need to achieve a secondary return from that investment. If a company reports effectively into the media, innovation can contribute significantly to brand equity and general image in the market place, offering a valuable secondary avenue of return.

However, for this return to become a reality, companies need to seriously examine the ways in which they are delivering innovation information to the media.

If a journalist feels that innovation reporting is largely a matter of company hype, then that says a lot about the type of information he is getting. The survey clearly indicates that the art of communicating R & D and innovation to the media needs to be re-examined. The simple press release – which is impersonal and probably one of hundreds sent to the media – is set to fail. Instead of a press release companies need to engage the media on a one-on-one and truly informative level.

Innovation reporting also needs to focus more strongly on the bottom line link between innovation and R & D drives and the overall company strategy. Businesses need to clearly define why the company has invested in innovation, what the expected return is for the company itself, as well as returns for suppliers, distributors and clients / customers.

The Media Tenor / Idea Engineers Innovation & Sustainability Media Survey performs two distinct functions. On the one hand it clearly lays out the need for an increasing focus on innovation within the South African economy, and within its associated media environment. On the other, it highlights a strong need for companies to re-examine the manner in which they report innovation issues to the media.

South African organisations, be they commercial or governmental, have to focus more on innovation. Innovation is a clear point of competitive advantage for our economy. In this context, the survey shows a strong need for an overhaul of the process companies go through when reporting their innovation objectives and successes into the media. Smart organisations – those that have a clear and definitive approach to innovation – will certainly achieve a considerable secondary return on their investment through their engagement with the media around the topic.

Innovation is a critical component of modern business. Indeed, cross-organisational innovative ability has, in recent years especially, powered the growth and competitive edge of the global economy’s best performers.

Innovation, in all its many forms, is a strategic and operational factor relevant not only to commercial entities, but also to government. In South Africa, in particular, government faces a unique range of challenges when it comes to service delivery that meets the needs of newly democratised country.

Wadim Schreiner is managing director of Media Tenor. He can be contacted by e-mail at or phone him on 012 346 6422.

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The need for speed

By Arthur Goldstuck

Speed is the hidden factor behind the slow-down in growth of online retail in South Africa. According to latest World Wide Worx report, “The Goldstuck Report: Online Retail in South Africa 2004”, the number of retail web sites has grown from 215 at the end of 2001 to more than 700 at the end of 2003. But the growth in online sales has been nothing as spectacular. Indeed, it is slowing down. Online sales by retailers – which exclude property, cars and travel – increased by 35% in 2003, but are expected to grow by only 25% in 2004. A total of R341-million in online retail sales was achieved in 2003 – a mere 0.14% of the overall retail market in South Africa.

Moreover, the market is dominated by the top eight online retailers, who between them account for about 80% of all online retail sales in South Africa. The dominant online retailers are Pick ‘n’ Pay Home Shopping,, Woolworths Inthebag, Netflorist, Cybercellar and, with the MWEB ShopZone dominating the market in online shopping malls, followed by Digital Mall.

Growth for these players is steady, but not as strong as in past years, when an annual doubling of turnover could be expected. However, most of them are healthier than at any time in the past, and most are generally profitable on an operational level.

The report includes in depth interviews with nine key executives in the e-commerce arena, and reveals the strategies behind the success stories in South African online retail. Most of these pinpoint lack of access to decent bandwidth at decent prices as the single biggest obstacle to growth.

There are suggestions among telecoms providers that South Africans can now get all the bandwidth they need, but this is a rather disingenuous standpoint. Firstly, the highest bandwidth that is close to affordable for existing Internet users is 512Mb per second, supplied by both Telkom in its ADSL offering and Sentech in its MyWireless service. But both are in fact expensive – starting at R680 excluding VAT, and that VAT charge is a real cost incurred by consumers, as opposed to the input cost that businesses can claim back from SA Revenue Services.

This is one of the reasons behind the slower than expected uptake of ADSL, which is hugely popular among small business but a tough budgeting decision for consumers. Another factor is that neither ADSL nor MyWireless are as widely available as their marketing messages would suggest. The former, because only certain exchanges support ADSL, and at a certain distance from those exchanges; the latter, because the roll-out by Sentech has to occur on a site by site basis, meaning that it is some years from general national coverage.

Cost and access are the main factors, but there are others, such as the matter of speed. The reality is that neither of these options represents true broadband. According to Broadband Daily, while the Federal Communications Commission says that connections with speeds exceeding 200 kbps in at least one direction are broadband connections, this definition is not accepted by the more technically-minded.

“Some hard-nosed high-speed junkies say that broadband begins at 1.5 Mbps. Some policy advocates, who mostly promote a technology overhaul that benefits tech suppliers, say broadband doesn’t begin until speeds reach 10 Mbps, and is ideal at 100 Mbps,” says Broadband Daily. “The truth is, broadband is relative. For the dial-up user, 200 kbps is broadband, or at least broader band. For the mobile phone user, 200 kbps over a handset is super-fast, at least for now. Cable keeps setting the gold-standard for broadband speed, with most cable companies upping the throughput rates to 2 Mbps, 3 Mbps and even 5 Mbps to keep pace with cheaper, but still-slower DSL competition. Phone companies vow to try to keep pace with cable, but 1.5 Mbps is the prevailing rate for DSL.”

The maximum theoretical speed for ADSL is 8Mbps, with 2Mbps the maximum commercially available in a country like the United Kingdom.

This puts our ADSL service’s “broadband” in neat perspective: DSL services in the United States are offered at three times the speed of Telkom’s ADSL precisely because it is important for the service to be seen as “true broadband” and to be compared to equivalent offerings. Similar access speeds in South Africa require heavy investment in leased lines, at a cost that is accessible only to corporates.

Can we blame Telkom for wanting to make huge profits on phone as well as data services? Of course not. If the telecommunications authorities say that is what they are allowed to do, that is what they will do. But it is time for the telecommunications authorities to understand the damage they are doing to competitiveness in South Africa by not acting more decisively on deregulating the market more effectively.

Online retail may be a tiny market, insignificant economically. But it is strategically important, and it is a benchmark of the performance inhibition that results from the telecommunications framework. A healthy telecoms regime would result in a healthy online retail environment. But it would also advance the health of so many other sectors of the economy, and hence the wealth of the nation.

Arthur Goldstuck is editor of The Big Change and managing director of World Wide Worx. He led the research for “The Goldstuck Report: Online Retail in South Africa 2004”. He can be contacted by e-mail on

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Economic trends: The consumer is still king

By Craig B Pheiffe

Recently released consumer and producer inflation data (for May) was again better than expected, prompting market economists to further reduce their expectations for inflation and interest rates later in the year. The latest monthly Reuters economic poll released on 1 July reflects this revised thinking and market watchers are now evenly split on the prospects for an interest rate hike later in the year. The renewed strength of the rand in late June and early July has reinforced the thinking that inflation will continue to be restrained in 2004 and 2005 and that a tightening of monetary policy will not be required. Tito Mboweni, the Governor of the SA Reserve Bank, has been fairly adamant that CPIX, the Bank’s target inflation measure, will not exceed the upper target limit of 6% this year. Until fairly recently market consensus had indicated a brief period of above-limit CPIX growth later in the year that would necessitate a small measure of policy tightening. The strong rand, some reprieve on the oil price front and the slower-than-expected pick up in inflation so far this year has changed the perceptions of some.

The Bureau for Economics’ (“BER”) Q2 inflation expectations survey, released at the time of the June Monetary Policy Committee (“MPC”) meeting, shows that financial analysts expect the CPIX to average 5,1%, 5,6% and 5,6% in 2004, 2005 and 2006 respectively. These numbers mirror the expectations portrayed in the monthly Reuters survey and indicate that those closer to the markets are fairly optimistic on the inflation outlook. That optimism is not entirely shared by “Business people” and “Trade union officials”, the other two categories of respondents in the BER’s inflation expectations survey. The business respondents expected a 6,6% to 7,1% range for CPIX over the next three years, while the labour respondents expected inflation to average 6,4% to 6,5% over the same period.

While not substantially so, all of these estimates for CPIX are above the upper limit of the inflation target. The Governor places substantial emphasis on inflation expectations as a self-fulfilling inflation mechanism and he remains concerned that increases in labour remuneration continue to be in excess of productivity gains, and this has implications for future inflation. Figures quoted by the Governor in his MPC statement indicate that wage settlements in collective bargaining agreements are expected to average between 7,5% and 8,5% this year. While this is lower than the increase in the average nominal remuneration per worker of 8,6% in 2003 and 9,5% in 2002, it will nevertheless add to the pressures on domestic production prices. Wage increases are just one link in the inflation chain but overly-high inflation expectations do leave the door open for the Governor to tighten policy, even if it is only for a short period to moderate inflation expectations.

The argument of “will he or won’t he increase interest rates” is largely academic. Any tightening in monetary policy in the near future is likely to be limited. South Africans will continue to enjoy a level of interest rates substantially lower than those that have historically prevailed in this country. Following government’s fiscal prudence over the last decade and the introduction of the inflation target, the “Ten years of freedom” slogan can be extended to include the freedom from excessive inflation and highly-restrictive interest rates.

Consumers are enjoying this newfound freedom and are exercising their right to exercise their wallet. Consumer confidence is at an all-time high and this is reflected in the FNB/BER consumer confidence index which jumped to +17 points in Q2 from -10 points in Q1. In June new passenger vehicle sales were 30% higher than in May and 16% higher than in June of the previous year. For the first half of this year, cumulative sales of new passenger cars were 20% higher than over the same six months of last year. The strength in consumer spending has also been manifested in the sales of retail goods. The methodology of collecting retail sales data has recently been revised by Statistics SA but the latest available numbers continue to portray fairly robust sales growth. In January, February and March, real retail sales grew at an annual pace of 6,7%, 7,1% and 5,5% respectively. Consumer borrowing has also increased as interest rates have been reduced and this has helped to finance consumption to a degree. Ultimately, the increased pace of borrowing will have to be reigned in by higher interest rates but for now consumers are enjoying their new “freedom”. Local retailers are consequently just as jubilant.

Craig B Pheiffer is Chief Investment Strategist at Sasfin Frankel Pollak Securities. For information on the impact of these trends on specific shares, contact him by e-mail on; cpheiffer

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Technical trends: Success depends on more than technology

By Ben van Niekerk

Governance as critical as effective development tools…

As the use of IT within organisations matures, for many non-technical executives, application development still seems a very hit-and-miss affair. There is a frustratingly high incidence of IT project failures, where projects are either abandoned or delivered way over budget and without the required functionality.

It’s rarely the technology that is to blame for this failure. IT managers are often at a loss as to how to improve things when the best available tools are already in use. There is great pressure to buy new technologies to help developers become more productive, and yet coding only takes up 20% of the entire application development lifecycle. Productivity improvements may have little effect other than getting to failure faster if they are not combined with improvements in the process of development.

Research from the Butler Group indicates that the answer lies in the introduction of a formal, documented application development strategy such as model driven architecture (MDA). MDA for the first time brings the concept of governance into the application development paradigm – and governance must be an essential component of any application development process.

Corporate responsibility for applications means that failure is a potentially greater problem than ever before. The United Kingdom’s 1999 Turnbull Report on corporate governance stresses that companies will be liable if they do not consider the internal and external risks to their systems. Directors could be held personally accountable if the potential risks of large-scale application development projects have not been properly assessed, and this provides a clear mandate for formalizing the application development strategy.

The business reality typically faced by application development teams is that the whole IT environment is highly complex, pressures are considerable as business demands delivery within specific time frames, and the gap between technical skill and business acumen persists. In this context, formal methodologies are often seen as a burden on the development process. However, a methodology is an encapsulation of successful development, and therefore can provide a guideline to repeat the success in future.

But methodologies still don’t solve the problem outright. With application development, no two programs are the same, and any method has shortcomings in one or another scenario. This demands that application development teams apply methodologies within an environment of flexibility and compromise to cater for the potential idiosyncrasies of specific projects.

Many of the issues surrounding the development of successful applications relate as much to the people and the process as to the technology that is used to develop and write code. Organisations need to encourage better project management skills in order to control projects more tightly.

Butler Group also stresses that business management and executive sponsorship is an essential contributor to success of almost any project, whether it is the implementation of a packaged application or the development of a new system. However, organisations still devolve much responsibility for IT projects to the IT department; while the actual development requires skilled practitioners, the success of the project is more dependent on clearly conveyed requirements, and executive enthusiasm and contribution.

Application development within the enterprise is complex and requires a dynamic approach that combines available technology with proven methodologies, committed teams comprised of technical and business-savvy members, and a willingness to innovate within the definitions of project guidelines. It’s not an easy combination, but it is one that will greatly mitigate the chances of project failure.

Ben van Niekerk is product manager at Compuware Corporation, a provider of software and technology services. You can contact the South African subsidiary on +27 11 516-2900

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The M&A Effect on Human Capital

By Chris van Melle Kamp

Open, honest and effective communication with all employees from the moment that the merger is announced is imperative because people are often insecure and anxious about their future within the new company.

Any information that can be shared with employees in terms of the vision of the new company will help to limit confusion. It is particularly important to provide key managers with as much information as possible about their roles in the new organisation to promote a greater sense of security. Every effort should be made to maintain an orderly, rational process.

Great products and services don’t develop and sell themselves, and the people behind these successes must be systematically identified and assessed for fit in the new company.

The baseline for all these evaluations is the overall vision and strategy of the new company. The new leadership must include those who are capable managers in their own right and also have the right skills and experience to propel that strategy.

Companies must clearly define and then maintain a steady focus on the strategy of the combined enterprise. Reaffirming the business case for the merger or acquisition, and identifying those who will be important in executing the strategy, will help identify who should stay on board. Once the company has determined who these people should be, it should make an effort to retain them by implementing a variety of retention tools, including compensation and quality of life issues.

For mergers that are subject to regulatory approval, the process can exact an additional toll on a human level as well as a business level. Beginning to merge as soon as the merger is announced is therefore critical to the future success of the combined company.

The culture that emerges from a merger ideally should not represent the legacy of either individual company but should be compatible with the vision and goals of the new company. Defining the vision as well as the culture in which it will be realised in day-to-day operational terms is a complex process. Critical decisions must be made about the more obvious elements that comprise the personality of a company as well as the less obvious idiosyncratic elements, such as dress and communication.

All of the integration activity must be addressed in a merger – all myriad of cultural, systems and compensation elements – must be accomplished efficiently if the new company is to hit the ground running and retain the key people.

From the point of view of building a formidable board of directors – both adding and replacing directors and implementing best practices – a merger or acquisition can present a rare opportunity.

Companies should resist simply throwing boards together to create a bigger board – it is better to properly plan well ahead of time for the board that will best help fulfill the vision of the merger, than to take the path of least resistance early on and then be saddled with the consequences. Planning against a matrix of best governance practices as well as a company’s specific strategic goals is still the best way to shape the new board.

Chris van Melle Kamp is a partner at Spencer Stuart, a leading privately held, global executive search firm at the forefront of transformation in South Africa.
He can be contacted at Spencer Stuart on +27 (11) 880 2217

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The Big Change is a business strategy blog and newsletter published by Arthur Goldstuck, managing director of World Wide Worx, a leading technology research organisation based in Johannesburg, South Africa.

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