Due to its strong universities, established technology clusters and buzzing startup scene, South Africa is the powerhouse of Africa’s tech economy. Cape Town is full of startup incubators and Johannesburg is a hub for B2B deals from across the continent. But why do many local businesses prefer multi-national service providers (like IBM and SAP) over their homegrown competitors? And is this attitude about to change?
Richard Knight is CFO of Argility Technology Group, based in Johannesburg, and he has seen this corporate bias up close. ”It’s a very small market, the tech market in South Africa, compared to your developed markets,” he says when I ask him about the technology landscape. “So typically, everyone seems to know everyone or they’re somehow connected.” Knight has been at Argility – a leading innovator and implementer of customized enterprise software solutions – for over ten years. He has seen the landscape change and is keenly aware of the rapid growth that comes from startup-focused, tech-savvy ecosystems abroad. “We are getting huge interest from global markets in South Africa when it comes to VC funding, there’s some really great startups. Cape Town is a great city for a lot of tech startups, especially in FinTech. Because of where we are, we’re able to skip the learning period of developed nations and jump straight into new sorts of technologies.”
Knight sees South African tech companies as being more than capable of filling the roles of many of their foreign counterparts. South African businesses are already used to trading across borders, and the businesses are outward-looking. Knight attended the CES Conference in Las Vegas in 2020, and the only technology that really surprised him was the developments in augmented reality. South African tech firms are already at the bleeding edge. ”Our tech companies are geared up to develop that type of technology just as well as the developed market,” he continued. ”We have our own academics.”
The Hesitance for Homegrown Solutions
Knight highlights two main reasons for why many South African businesses feel more comfortable choosing larger, multi-national companies as their technology partners, as opposed to homegrown alternatives. The first is accountability. “You never see a CTO or CIO being fired for selecting SAP or IBM as their first choice, you know? If you select a smaller South African local software company and something goes wrong, the board looks at you and says, ‘why did you choose them when you could have gone with SAP?’ Even though SAP is going to cost you ten times the amount.”
His second reason is simple: Historical bias for US or European services. “They feel that any new tech is best sourced from a US or Europe-based company. We are always pushing being proudly South African as a marketing strategy. That’s something that we believe these companies should be looking for and supporting to help the growth of South Africa.”
A Changing South Africa
As the pandemic alters the needs of his own customers, Knight has noticed shifts in his business’ focus, as well as emerging challenges. The main shift seems to be towards a more global and interconnected South Africa, but some things are still holding the country back. “Among supply chain companies who need support to grow, there is a talent management risk around recruiting quality resources in the fourth industrial revolution. We have positions that need to be filled and we are battling to find the right people, with the right technology experience to fill them. A lot of people are still leaving to work overseas, what we call the brain drain, so that presents a challenge.”
He also describes the issue with the general South African commerce industry being less tech-savvy than their US or European counterparts. While the situation is changing rapidly, Knight feels that there is more skepticism about new technology service offerings in South Africa. ”We try to convince them of the benefits that they would gain from adopting things like predictive analytics and utilizing data science. I think what we saw in the developed markets, especially at those conferences, is that customers are saying yes, please give it to us. South Africa will get there, but it will take time, so in the meantime, we focus on education. We write a lot of thought leadership articles to try and educate people.”
The COVID-19 Effect
As the world still wrestles with the pandemic and the virtues of digitizing businesses become more apparent, there’s a possibility that some of the challenges faced by South African tech firms will change for the better.
Since the start of the pandemic, Africa’s 1.3B people have begun transacting digitally at an unprecedented rate, and it has echoes of the mobile tech revolution from a decade ago. Due to connectivity issues, mobile use soared in Africa, becoming the predominant way of getting online. As Knight mentioned, a leapfrogging effect may be underway in Africa as many countries are unencumbered by legacy systems and by old-fashioned technology acquisition processes. Many of the shifts brought about by COVID-19 are as big as mobile, but not quite as visible. Changes to logistics, B2B financing and recruitment make up part of the tapestry of change. DPO, a South African e-commerce company, has just been bought for $288M off the back of sharp revenue increases on a continent that’s already primed for expansion.
“I know it’s a cliché,” says Knight, “that COVID-19 has been a catalyst to help get businesses to digitize, and in some sectors it’s faster than others, but it has ramped things up. Our customers now want to move everything onto the cloud, which is great for us. It means we don’t have to look after these clunky servers and deal with all sorts of third parties. It’s a lot quicker and faster, and they’re seeing the benefits, which is awesome.”
It seems that, despite the challenges, South Africa may have a bright future in tech. The burning question is: How many of the continent’s inevitable, future unicorns will come directly from South Africa? Only time will tell.