Is Africa the Next SS&O Hotspot?

Shared Services and Outsourcing Africa 2014 www.sharedservicesafrica.co.za

As global investment shifts towards developing economies, Africa is becoming increasingly popular in offering both local and global delivery capabilities. With this in mind SSON compiled 10 key reasons why Africa could be the next SS&O hotspot. Traditional BPO locations may soon be quaking in their boots…

Shared Services and Outsourcing Africa 2014

South African students spend more years in school than their counterparts in other emerging economies, such as China and India, according to one OECD (The Organisation for Economic Co-operation and Development) report. This improvement in childhood education has trickled up to tertiary level education, with the number of students rising by nearly 300,000 in fewer than 15 years in just one province of South Africa. According to the country’s governmental website, there are 23 public higher education institutions, including The University of Cape Town Graduate School of Business, which notably features regularly in the Financial Times Top 100 MBA programmes.

Five of the world’s top 10 fastest growing economies are African, according to the IMF. Couple this with the fact that the continent has also grown faster than East Asia for a number of those years, and that is has a higher proportion of land mass covered by mobile-internet services, beating India; you can see Africa is a region not to be ignored. With increased investment, Africa is able to take on its new flourishing role as a potential player in the global SS&O industry, offering cost-benefits, an eager and talented workforce, and new infrastructure developments. Let’s take a look at what the world’s youngest continent has to offer the outsourcing industry. 1. Proximity Africa is well positioned to service European markets with time zone compatibility with many European capitals, as well as even stretching to the US East Coast. South Africa in particular has a cultural affinity to the Western world, offering a similar working week schedule. It also has three international airports. In the late 19th century European imperial powers engaged in colonialism and the “scramble for Africa.” Because of these historic ties, African business is frequently linked to its past powers, including France, Belgium, Portugal, Spain, Germany, Italy, Turkey, the Netherlands and the UK. 2. Talent in Africa As an emerging economy, Africa has realized that it needs to plug the talent gap to keep its business potential growing. Its educational programmes have really stepped up to the plate, providing BPO organisations with a wealth of newly qualified talented graduates.

Another country looking to grow its outsourcing sector that is already showing promise is Nigeria. A third of sub-Saharan university students are Nigerian, the most populous of African states. Nigeria has seen a rapid growth in the number of students enrolling into higher education, and has had to expand its institutions to keep up. The UNESCO Institute for Statistics 2012 claims Nigeria had only 51 universities in 2005, it now has 128. It also states the number of students has grown to approximately 1.2million. But what does this mean to the BPO industry?

The Everest Group Market Vista Report Q4 2013 reports that annually South Africa sees 7,000 law student’s graduate, while the annual domestic demand is less than half that number. Therefore, South Africa offers a large pool of qualified candidates eager to work in Legal Process Outsourcing, with wages roughly 50% less than that of UK graduates. South African law is also based on English common law and the Roman-Dutch civil system, meaning the understanding of Westernized legal processes already exists. The cultural affinity covered above extends into the language and accent skills of Africa. Described as being the most multilingual continent in the world, Africa has close language ties with ex-colonial powers that happen to be major BPO customers nowadays. Two thirds of Africans speak English or French, with Portuguese also widely spoken.

South Africa South Africa offers cost savings of 50-60% over UK onshore operations. The average attrition rate for customer service associates for 2012-13 was only 13.1% in the Western Cape Province. South African students spend more years in school than their emerging economies counterparts. Johannesburg took the top spot of African countries in Tholons 2013 Top 100 Outsourcing Destinations Rankings. Cape Town also made the Top 100.

Kenya Kenya has a five year goal of creating more than 20,000 direct BPO jobs. Its capital Nairobi featured in Tholons 2013 Top 100 Outsourcing Destinations Rankings.

Nigeria The UNESCO Institute for Statistics 2012 claims Nigeria had only 51 universities in 2005, it now has 128.

Ghana Accra was the second based place in Africa to outsource according to Tholons 2013 Top 100 Outsourcing Destinations Rankings.

Morocco Casablanca was the third best place to outsource in Africa, according to the Tholons 2013 rankings.

www.sharedservicesafrica.co.za

Its flagship project is to establish Konza Technology City; a modern ICT park in Nairobi with reputable local and international BPO suppliers, and promote Kenya as a BPO destination to increase demand of BPO services globally. Alongside this, the government wants to increase the Kenyan ICT talent pool to meet the increasing demand. It has a five year goal of creating more than 20,000 direct BPO jobs and increase its contribution to GDP by Ksh10billion. The Kenyan and South African BPO industries are at the more advanced end on the African continent, but other countries are also muscling in to get a piece of the market. The Ugandan government set up a BPO incubator in the capital, Kampala, in 2012, and the Uganda Business Process Outsourcing Association already has approximately 60 members registered. The South African government launched the Accelerated and Shared Growth Initiative for South Africa in 2007, with aims of ensuring at least 5 BPO operations are established in poor areas, with low economic activity, targeting youth and women as primary workers to be employed and have their skills developed. 5. Increased International Investment While Africa and Western Europe’s historic ties have resulted in increased investment into the continent, China too has been a big supporter of the African economy. China is Africa’s biggest trading partner and therefore growth in the BPO industry can also be attributed to Asian investment, and could open up Africa to Chinese BPO customers as well. In 2007, according to the Migration Policy Institute, Chinese companies invested $1billion USD into Africa, as well as more than 230,000 Chinese nationals travelled to Africa.

The South African accent is a preferred accent for many UK call centre businesses, because customers find the accent relatable; with a similar voice quality and tone. This proves to be very useful when dealing with international customer queries. 3. Retention Rates The larger the BPO industry, the more opportunities there are for employees to ‘job hop’. Africa is still a growing BPO hub, both domestically and as an offshoring provider. Overall attrition rates are lower than the world average, but they are increasing in areas where contact centres have been present for 10-15 years, with a more mature and captive market, such as South Africa. In 2012/2013, the attrition rate for customer service associates working for international outsourcers was 26%. In the West Cape province of South Africa, the average rate was only 13.1%, according to BPeSA (Business Process enabling South Africa), an organisation founded to promote the IT-enabled services industry in Cape Town. This low rate is a sign of invested staff and managers committed to optimising productivity. 4. Government Support Many African governments are keen to take their country and BPO capabilities to the marketplace. Over the past 15 years policies have been adopted to energise markets and encourage economic growth, including the privatization of more than 116 enterprises in Nigeria, and the free-trade agreements with major export partners for both Morocco and Egypt. The Kenya Vision 2030, a national long-term development plan aiming to transform the country into an industrialised, middle-income nation, is a great example of governments embracing the BPO industry.

Africa by Numbers

21

4

31

60

8

22%

5.2%

50%

$200+bn

21

New legal tenders were introduced at the beginning of 2014 in Zimbabwe. It already accepted two other foreign currencies. Economic growth is projected in sub-

Saharan Africa, according to the World Bank’s latest edition of Africa Pulse.

African cities made the cut in Tholons 2013 Top 100 Outsourcing Destinations Rankings.

African countries speak English as an official language.

Further countries also speak French as an official language.

Is the amount of FDI projects growth in sub-Saharan Africa at a compound rate since 2007, according to Ernst & Young’s ‘Africa Attractiveness Survey.’

Sub-Saharan African economies implemented at least one regulatory reform to make it easier to do business, according to the joint World Bank & IFC flagship ‘Doing Business’ report between 2012-2013.

Less is the cost of South African Legal Process Outsourcing wages in comparison to UK graduates.

Members are already registered at The Uganda BPO Association.

Is what the global outsourcing industry is worth, and it is likely to grow rapidly over the next five years.

Shared Services and Outsourcing Africa 2014 www.sharedservicesafrica.co.za

level of processing work, and service global organisations more efficiently. In Tholons 2013 Top 100 Outsourcing Destinations Rankings it featured eight African cities, demonstrating its global appeal. Johannesburg took the top spot of African cities, ranking at number 22, beating a number of Eastern European and South Asian BPO rivals. 8. Continued improvement Africa is an evolving continent, continuing to build on its recent successes and succeed on a global level. In the Tholons 2013 report just mentioned, 50% of the African countries improved their ranking from the past year, and 25% maintained their ranking. It was only Egyptian cities that lowered the continents average score, with its recent tumultuous political and social environment. The landscape of doing business in Africa has dramatically changed since the introduction of undersea cabling in recent years. The cabling has fuelled mobile telecommunications growth, helping Africa establish itself as a call centre destination. These cables are changing the way Africa can access the world, and vice versa. Stanford University is monitoring the impact some of the cables are having to evaluate the increasing connectivity and improvements to mobile telecommunications. Undoubtedly, as Africa’s under-sea cabling develops, the more of an appealing BPO destination it becomes. In the joint World Bank and IFC flagship ‘Doing Business’ report, which analyses regulations that apply to an economy’s businesses, revealed that between 2012-2013 31 out of 47 sub-Saharan African economies implemented at least one regulatory reform to make it easier to do business.

Reuters reported earlier this year that foreign direct investment flows to Africa increased nearly 7%, where a fifth of the estimated $56million went to South Africa. South Africa heavily invests outside of itself, making investments that have a social impact, leading the telecommunications industry with companies such as MTN that increase network coverage across Africa, enabling growth in other nations. Nigeria’s Globacom Ltd also provides mobile phone services to other West African countries. The UK is historically a strong BPO investor into South Africa, investing 76% out of total financing in 2005 in the Western Cape Province. That year also saw Asda, Amazon.com and STA Travel head to Cape Town. 6. Favourable Exchange Rates Most African states use their own national currency, but for many, the use of the US Dollar is common and typical business practice. Western economies find exchange rates are very favourable to them, albeit sometimes volatile. Using the same currency throughout can make E2E processes a lot smoother within financial transactions, and save on waste. In early 2014 Zimbabwe’s central bank announced that the country had wholly adopted Chinese Yuan, Australian Dollars, Indian Rupees and Japanese Yen as legal tender. It already accepted USD and South African Rand as main tenders. 7. Local and global capabilities South African financial majors are expanding rapidly into sub-Saharan Africa, resulting in opportunities for South Africa to become a near-shored service provider. Financially, South Africa has a similar structure to many Western European countries, meaning it can attract a higher

Rwanda, Mauritius and Burundi made the most significant reforms detailed in the report, demonstrating the desire for improvement outside of more obvious and typical African outsourcing destinations such as South Africa. 9. Flexibility Flexibility has always been an important driver when choosing a BPO provider. In recent years the bidding process for industry contracts has become more and more transparent, with organisation’s demanding increased flexibility, which can be attributed to the current economic climate, which is in recovery but still has market turbulence persistently looming in the background. Such flexibility is reflected in shorter length outsourcing contracts, and the emergence of multi-outsourcing, where companies add additional layers and business elements to mitigate risk.

According to The Outsourcing Unit, at the London School of Economics and Political Science, flexibility is essential to building a good outsourcing relationship. The Unit used examples from the South African outsourcing industry, including Australian-based Internet service provider iiNet and its partnership with Merchants, as well as Full Circle’s flexible delivery of turnkey solutions for Amazon. The suggestion is that South African firms are not just vendors, but partners; offering flexibility, transparency and honesty from the point of making a bid, to contract engagement, to everyday communication and strategic delivery. This type of relationship is slightly different to a traditional outsourcing partnership, which is based on a more transactional model. 10. Cost Benefits Costs benefits are a major reason to outsource anywhere, and Africa has a few

“Around a tenth of Africa's land mass is covered by mobile-internet services — a higher proportion than in India.”

Shared Services and Outsourcing Africa 2014 www.sharedservicesafrica.co.za

of them. High unemployment levels and a young workforce mean labour costs are low, as does low wage costs and low recruitment expenses, making Africa ripe for cost benefits. And as the continent moves towards more hybrid models of outsourcing, further cost savings could be achieved. South Africa offers, according the BPeSA, cost savings of 50-60% over UK onshore operations. There are also tax exemption grants in some South African provinces for creating sustainable employment growth, as well as expansion grants and discounted telecommunications prices.

Shared Services and Outsourcing Africa 2014

Africa is taking on its new role as the next frontier of service delivery across the global stage. With opportunities opening up across the continent, will you be attending Shared Services & Outsourcing Summit: Africa 2014? This year’s summit delves deeper than ever before into strategies and tactics to ensure the African SS&O community delivers more value and enhanced business alignment; by improving process, people and performance to support business growth across African operations.

Confirmed speakers include: • Tyagrajan Ramalingam, Global Head of

Shared Services, Siemens • Haroon R Kanth, Director Global IT

Services, Telenor • Lulekwa Ngcwabe, Senior Manager,

Shared Services Finance Division, Eskom • George Gregory Malebaco, Head of

Procurement, Samsung • Waldo Hattingh, Continuous Improvement

Leader, Exxaro • Busiswe Mashiyi, General Manager Shell

To view the brochure for SSOA, please click here. For further information about the event, to register or to enquire about sponsorship, please contact us at: enquiry@iqpc.co.za +27 11 593 2267 www.sharedservicesafrica.co.za www.ssonetwork.com

24 - 26 June, 2014 - Johannesburg, South Africa

Compiled by Larissa Hirst, Online Content Manager, SSON. Primary sources: http://bpo.go.ug/ http://www.tholons.com/TholonsTop100/pdf/Tholons%20Top%20100%202013_Rankings%20and%20Report%20Overview.pdf http://www.callingthecape.org.za/ http://www.bpesawesterncape.co.za/wp-content/uploads/2012/05/KIR-Low-Res-20130522-Final.pdf http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Fact-Sheets/DB14/DB14SSAFactSheetEnglish.pdf https://research.everestgrp.com/Product/EGR-2014-8-R-1063/Market-Vista-Q4-2013 A full list of references can be obtained by emailing events@ssonetwork.com The information and statistics have been compiled using reliable sources. The views represented are not those of SSON, and whilst we try to publish accurate information, there may be discrepancies. If you find an error, please contact us using the email address above.