The billion rand question

To realise its ambitions for the economy, government is mooting a set of concrete economic proposals, called the Acce-lerated and Shared Growth Initiative (ASGI), underpinned by investment of R370 billion in infrastructure over the next three years.

This money will be spent on expanding the infrastructure of SA`s state-owned enterprises (SOEs), leveraging their assets and implementing special provincial projects.

One area targeted under this national SOE programme is ICT infrastructure, and broadband - or high-speed - Internet infrastructure in particular, in what most would argue is a move long overdue.

Just consider a recent report in Australia estimating that increased broadband penetration would lift the country`s GDP by between 0.5 and 2.5%.

The Department of Communications has not been forthcoming in the exact details of ICT spend or projects, insisting (rightly) that it`s the President`s prerogative to announce them in his State of the Nation address, which followed this article going to print. Let`s hope he does.

What we do know is that SA`s powerlines already have fibre-optic cables with the capacity for high-speed and relatively cheap transmission of signals. In addition, global astronomy partnerships could create more opportunities for expanding access to broadband ICT infrastructure. And SA is involved in the $200 million Eastern Africa Submarine Cable System (EASSy) that will run from Mtunzini in SA to Port Sudan. The undersea cable promises to lower the cost of international connectivity for many African operators and provide faster bandwidth at a price that most African consumers can afford.

Trade and Industry Minister Mandisi Mpahlwa indicated in November that the Department of Communications "is facilitating broadband technology for the needs of the first and second economies". He also reported that a benchmark study on best-in-class practice and a stakeholder discussion paper on broadband policy are in the process of being developed. A programme to modernise infrastructure is also being initiated, said Mpahlwa.

"In terms of broadband, we`re talking about a few billion in spending over the next couple of years to get South Africa where it wants to be, not just among the pack, but at the cutting edge of it," Ravi Naidoo, head: Economic Research & Policy Coordination at the Department of Trade and Industry, informs iWeek.

Mark Walker, of research firm BMI-TechKnowledge, notes that France, a developed country, spent about $53 billion on IT hardware, software and services in 2005 to service a population of 39 million economically active adults, compared to SA which has about 20 million people in the same demographic sector and spent $7.5 billion. This indicates a spend per head of $1 325 and $375 respectively - an implied underspend of 3.5 times.

"There is no clear cause-and-effect relationship between ICT and a country`s GDP," notes Brian Neilson, also of BMI-T. "But it is generally agreed that it is a both-ways causality - higher GDP means more to spend on ICT, but also higher ICT penetration does have some positive impact on GDP."

Furthermore, Naidoo indicates that the non-gold mining private sector will invest some R300 billion in SA over the next five to seven years, and that an unspecified portion of this will also be invested in ICT infrastructure.

INFRASTRUCTURE BOTTLENECKS

In addition to tackling infrastructure bottlenecks, ASGI also provides for the removal of those constraints inhibiting the growth of the economy. This entails lowering the cost of doing business in SA facilitated by an improved regulatory environment.

In his 2005 State of the Nation address, President Thabo Mbeki noted that "bold steps" had been taken to liberalise SA`s telecoms industry. "We believe that the unacceptable situation in which some of our fixed line rates are ten times those of developed (OECD) countries will soon become a thing of the past. We also hope that the delays in setting up the Second National Operator (SNO), arising from legal processes beyond government`s control, will be resolved in due course, and as soon as possible," he said.

The process of licensing an SNO started in 2002 when Telkom`s mono-poly officially ended. But the introduction of fixed-line competition to Telkom has been hindered by numerous delays. After finally being granted its licence in December 2005, SNO Telecommunications - the SNO company - stated that it plans to launch its first services by mid-2006 and to have rolled out a wide portfolio of telecoms services by March 2007.

In a statement, SNO Telecommunications said it would finally bring about "the level of infrastructure-based competition that is required to open up the sector, to reduce the cost of doing business in South Africa, and to extend communications into the second economy. It is competition, rather than regulation, that will bring South Africa in line with the wider world of telecommunications."

On the topic of broadband, the SNO informed Moneyweb there were more than 150 million fixed-line broadband users around the world, but that SA had fallen behind over the past few years. Its initial focus would have to be the deployment of backbone infrastructure, but it would work towards the growth of real broadband access for both business and consumers and would roll its broadband services out over time, the SNO said.

Mike van den Bergh, of Gateway Communications, a communications service provider to Africa, concurs. "The reality is that investment will come if we have the right regulatory environment, which means the liberalisation of the telecoms sector."

Gateway, he says, often bases its communications infrastructure in Europe. "Here the cost of employing people is astronomically high, but we are able to establish infrastructure without regulatory hurdles."

"There is a tremendous appetite for investment in Africa, and South Africa in particular, but there are numerous barriers to entry, licensing (VSAT, for example) and broadband infrastructure constraints being the main culprit," explains Van Den Bergh. "Our preference would be to invest in South Africa," he notes.

The DTI`s Naidoo admits that SA compares very unfavourably with its counterparts in most respects of the cost of telecoms and the capacity of its infrastructure, "and to some extent that just is a weakness of the regulatory environment".

The ICT environment has seen the fast-tracking of what was formerly known as the Convergence Bill, now the Electronic Communications Bill.

The Bill proposes to change the current licensing regime, based on a vertical application of technology and mobility, to that of a horizontal framework based on services.

According to Communications Minister Dr Ivy Matsepe-Casaburri, the Bill provides for a dramatic increase in the number, types and quality of licences. This will increase competition in the sector, thus reducing the cost to communicate and making ICTs more affordable and accessible, both to the first and second economy, she says.

The Bill also promises for greater independence of regulator Icasa in the implementation of policy as directed by the Communications Department, which is essential for competition.

Roy Padayachie, Communications deputy minister, has said that the importance of the Electronic Communications Bill cannot be underestimated. "Reform and change in the telecommunications sector is driven by our policy of `managed liberalisation` and the need to accelerate the development of greater competition in the sector so that we are able to play our role in achieving the target of an accelerated growth strategy of six per cent or more GDP in the coming years," he explained.

"The South African economy is highly concentrated, and telecoms is a prime example of that. It`s a problem not peculiar to telecommunications, but also to the steel and chemicals industry for example, due to the concentrated market where a state-owned company was dominant."

He says that there is a lot of potential to increase investment, and notes that although Telkom has been investing far more recently, it`s still substantially less than it needs to be. "In general there needs to be much more investment from the bigger companies in these industries."

Telkom spokesperson Lulu Letlape indicates that it is "investing intensively in the development of converged services by speeding up the evolution of the Next Generation Network". "Telkom further supports the growth strategy with gradually reducing the pricing across service offerings," she says.

"Through its business partners, Telkom`s commitment to the ASGI is to continue to provide South African businesses with a state-of-the-art network, ensuring they operate in a stable, friendly and efficient ICT environment," concludes Letlape.

ARM IN ARM

The role of business and labour will be to sharpen the ASGI strategy, as it were, says Naidoo, and although the bulk of the investment spending will be by government, business will also make substantial contribution.

Responsibility for every element of ASGI has been allocated to one of the government`s coordinating clusters (social, economic, international relations, justice and security, and government and administration), and will be summarised into an action point and linked to specific departments, timelines and progress reports.

"If you look at telecoms, it requires input from the DTI and its Competition Commission and Tribunal, the DOC and Icasa, the Department of Public Enterprises, which controls state-owned enterprises each with their own ICT capacity, and the presidency, and a number of other departments which would have an interest in this aspect of the programme," points out Naidoo.

"The weakness in the past was that departments would do things separately, and therefore you couldn`t deal with ICT costs, for example, in a comprehensive way. The new approach is to identify projects, then the departments which are relevant to that project come together as a joint implementation team, with very clearly identified project format, milestones, budgets required, and so forth."

In this regard, SA will emulate the successes of ICT growth in fellow middle-income countries such as Brazil, Malaysia, South Korea, and Poland.

ASGI will also focus on fully exploiting SA`s range of comparative economic advantages to support a higher growth rate. To this end, it has devised a sector investment strategy, which pinpoints immediate-priority, top-priority and medium-term-priority sectors. Worth noting is that business process outsourcing (BPO) and tourism are the only immediate-priority projects. Practical implementation of a strategy for these sectors is apparently "currently on the agenda".

Government is also undertaking "rigorous procedures to support the implementation of e-education, e-health and e-government," says Mpahlwa.

Deputy President Phumzile Mlambo-Ngcuka, who is spearheading the ASGI, indicated at a briefing last month that government hopes to make a meaningful start with the implementation of the initiative in the next year. She added that, once it has started, government would closely monitor and evaluate the progress of ASGI to ensure it delivers its potential economic benefits.