IT Confidence event gets mixed forecast 2008 looks set to be a tough economic year, according to speakers at the recent ITWeb IT Confidence event in Johannesburg.

The conference began with a look at the country`s economy. The chief economist at Investment Solutions, Chris Hart, painted a grim picture, telling delegates that South Africans should brace themselves for a tough year.

He warned that there were signs that SA was heading towards a "vicious cycle" triggered by a depreciating Rand.

"When the rand depreciates it has a domino effect on many things," he said. Hart explained that the rand`s depreciation causes higher producer inflation, which in turn leads to higher consumer inflation. This means that Reserve Bank governor Tito Mboweni could be forced to hike interest rates again, taking money out of the consumers` pockets.

The significance of that was consumers shipped less, putting strain on economic growth, he said. In turn the lower economic growth makes made SA an unattractive investment destination for investors, meaning negative investment flows for the country. This led to further pressure on producer inflation, causing higher consumer inflation, and a "vicious cycle" ensued.

Another cause for concern, according to Hart, was the current account deficit. He said it had ballooned in the past two years. "What`s more astounding is that in the last six months it has widened from 6% of the GDP to 8% of the GDP, he stated. The combination of the current account deficit and as a slow economy was detrimental to SA as it placed pressure on the rand, Hart stated.

He said the economic trend worldwide was that the current account deficit was always accompanied by something else. In SA`s case it was no different. Compounding the current account deficit problem was bad politics, said Hart. "It`s not that the people in politics are bad – it`s because we have this political uncertainty," he pointed out.

"With the political changes that took place in Polokwane it`s not yet clear whether there will be policy changes or consistency. In addition to that there is still an upcoming trial of the president of the ANC, "he said.

He noted that there was a possibility that SA would have an election before the trial was over. He added that this would not bode well for the country. "All this uncertainty is driving away investors who don`t mind risk but cannot handle uncertainty," he said.

Hart went on: "Making matters worse is Eskom has imposed sanctions on the country. Investors cannot come here because Eskom cannot guarantee electricity. What this means is that at the time when the country needs to be absorbing greater amounts of investment just for the rand to remain stable, we are turning away foreign investment."

NOT ALL DOOM AND GLOOM

But it was not all doom and gloom. Hart pointed out that in every economy, there were "up cycles" and "down cycles".

"We are in a down cycle at the moment. What we do no need to bear in mind is that a down cycle does not last forever. At the bottom of every down cycle there is an up cycle," he said.

He drew attention to the fact that a similar cycle happened at the beginning of 1998. "The interest rates were low but the rand crashed and interest rates shot up to 25%. That put the economy flat on its back and we saw a vicious cycle that year."

But later that year SA`s economy recovered and saw 10 years of uninterrupted growth.

POCKETS OF GROWTH

Roy Blume, IT research manager at BMI-TechKnowledge, added an even more positive spin when he gave his address. He said while power outages and load-shedding had negatively impacted the economy at large, they also brought unique opportunities for the ICT sector. Blume maintained that Eskom`s inability to ensure a stable electricity supply was not only driving the uptake of 3G and wireless technologies but also bringing technology such as virtualisation to the fore.

"Virtualisation, driven by concerns over a secure power supply, will become vital to businesses," he said. Blume added that virtualisation would be the top trend to focus on in 2008.

He said that while the economy was undergoing a down cycle, there were "pockets of growth", with government set to increase spending this year.

"Construction and 2010 projects will continue despite load-shedding," he said, adding that this was where a lot of potential for growth in the IT market lay.

Blume commented that in SA, IT had become more than a "nice to have", but rather an essential business tool for most companies. "This means that not even Eskom will be able to take away big business`s spend on ICT."

BPO UNDERGOING A TRANSFORMATION

Discussions moved to business process outsourcing (BPO) where it was revealed that power shortages had jeopardised SA`s chances of being the BPO destination of choice. "You can`t become the offshore BPO and call centre destination of choice if you don`t have power," said Blume.

With a rampant worldwide skills dearth, BPO was touted as one of the vehicles that would not only bring much needed foreign investment to the country but would also stimulate SA`s job market.

{PQ}Later in the discussion, John Jenkins, group executive of services at BCX, said BPO in the ICT sector was undergoing changes. "Because of the challenged facing the market, BPO is moving away from a one-on-one relationship, but towards commoditised core services," he noted.

A GOOD YEAR FOR BROADBAND

There was a ray of light towards the end of the day, with telco operators forecasting that 2008 would be a good year for broadband, as demand for broadband services continued to rise.

Mike Brierley, CEO of MTN, added that this year would be a year of intense competition and consolidation in the telecommunication sector, culminating not only in telco stalwart Telkom losing market share, but in its being acquired by foreign interests.

With regard to newly formed Vodacom Business, he said: "I`m not expecting Vodacom to make a significant impact in the first part of this year, but certainly in the latter part of the year there will be activity from the company. Vodacom is a significant company with significant resources we obviously can`t ignore them. We are certainly not going to lie down and play dead."