South Africa - Country and IT Market Study (Summary)

Zinnov Management Consulting

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South Africa Country and IT Market Report (Summary) Global Market Expansion Advisory

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2

Table of Contents

Summary

Macroeconomic Environment

Infrastructure Overview

Vertical Insights

IT Market Landscape

Zinnov Point Of View

3

Table of Contents

Summary

More

than

~ 18 Mn strong Labour force ~ 5.5 Mn Youth ~ 536K SMEs

62 million mobile subscribers

Increasing Consumption & Disposable incomes

Lead in Natural Gas & Palm Oil exports

4

Summary - Macroeconomic Environment

GDP 2012-16

5.4% CAGR

High level of subsidies; govt. leveraging

debt for infrastructure, wage increases,

etc.

18 million labour force; Low labor

participation rates

High unemployment rates; faces labour

problems owing to weak public education

and restrictive labour laws

$ Driven by Domestic Demand and

Government spending; high income

inequality

41% Debt/GDP

ratio

25.3 Median

Age

25%

Unemployment

Negative

Neutral

Negative

Neutral

5

Exports small and medium car to rest of Africa;

production expected to increase

Foreign investment allowed in 2011; Walmart

entered South Africa by acquiring a local player

Largest Coal reserves in Africa is ~3.5% of global

coal reserves; high rates of electrification

3 International Airports & 7 Domestic Airports cater

to the aviation sector; low levels of investments

Low interest driving Loans growth; High Non-

Performing Assets – 5.7%

Summary - Vertical Insights (1/2)

623K car sales; 9.2%

YoY growth

$ 72 Bn sales; 4.8%

YoY growth

Contributes 3% to the

country’s GDP

34.7 Mn passenger

travel in 2011; 3% YoY

growth

$ 470 Bn assets; 10.7%

YoY growth

Positive

Positive

Neutral

Positive

Automotive

Retail

Energy/ Power

Aviation

Banking

Figures for 2012 unless quoted separately; YoY growth for 2011-12

Neutral

6

Summary - Vertical Insights (2/2)

Government related projects driving PC sales;

Low growth of economy affecting PC adoption

$ 10.8 Bn IT spending;

9% YoY growth

expected 2012-13

Retail industry, Commercial complexes & low

cost housing plans by the government driving

the growth

(62%) High level of

urbanization to drive

real estate industry

~62 Million mobile subscribers; 33rd largest

Facebook users in the world

Mobile penetration ratio

~ 127%

$16.7 billion to be invested in 4 years. Low Teacher-Pupil ratio of 1:30 in 2011.

~170K graduates; ~48K

engineers annually

Low Doctor-Population ratio

$ 3.6 billion budget

allocated for healthcare

services

Positive

Positive

Neutral

Positive

Positive

Healthcare

IT/ITeS

Real-Estate

Telecom

Education


7

Summary – IT Market Landscape

PC Installed

Base

Over 2.5 Million units shipped in

2012

Smartphone

Users

Accounts for 20% of total mobile

subscribers Over 10 Million

Mobile

Subscribers

Mobile penetration rate of

~127% Over 62 Million

Internet Users ~3.5 Million broadband

connections

Over 8.5 Million

Total Domestic

IT Market

Hardware (45%), IT Services

(36%), Software (19%)

Over ZAR 96.8 Billion

Over 13 Million


8

Basic Facts & Figures

Source: Philippines Government

Cape Town: 2nd most populated city in the country and also the most popular tourist destination

Zulu, Xhosa, Afrikaans and English

Christian (74%), Traditional (15%), Rest Other (11%)

Durban: 3rd largest city in the country and has the busiest port in all of South Africa

Fiscal Year - March 1 to February 28

Constitutional democracy with an executive president elected by parliament

South African rand (sign: R; code: ZAR)

Johannesburg: Largest and the most populated city in the country and is a source of a large scale gold and diamond trade

9

Table of Contents

Summary



Sector Overview

IT Market Landscape


GDP Forecasts

Financial Performance

Governance scores

Demographics details

10

Table of Contents

Summary



Sector Overview

IT Market Landscape


11

5,71,415

6,23,914

2011 2012

Automobile Sales

9.2% Growth

Automobile Industry valued at $19.6 billion in 2012; employing ~ 300K

6.8% GDP contribution by Automotive Sector in 2011

4,39,997

1,56,170 17,931 9,816

Passenger

Cars

LCV Heavy

Vehicles

MCV

Automobile Sales by Segments, 2012

Over 51% of cars are exported - 277,844 vehicles

exported in 2012 valued at USD 5.6 billion

Small & medium cars form over 3/4th of the

exports (77%, 214,261 cars)

0.53

million Units

1.2 million Units

2012

2020 CAGR of 10.8%

Projected Production of Vehicles

Market Share of Major Players in South Africa, 2012

Toyota Volkswagen AMH (local

player)

General Motors

19.2% 18.1% 13% 11.9%

Source: NAAMSA National Association of Automobile Manufacturers, Department of statistics, South Africa, Ministry of Transport, South Africa, OICA

26th Largest producer of cars in 2012; ~540,000 cars were manufactured

Automotive Sector-Overview

12

Automotive Sector- Growth Drivers

Source: NAAMSA National Association of Automobile Manufacturers, Department of statistics, South Africa, Ministry of Transport, South Africa

• 262,156 cars domestically

sold in 2012

• Domestic car sales

increased by 9% from

2011

• 20% of import tariffs on

components made duty

free for manufacturers

with production capacity

>50,000 units

• Reduction in import tariff

up to 25% for built up

vehicles for

manufacturing

Local Assembly

Allowance for Domestic

Manufacturers

Strong demand

from Domestic Market

Rising demand for car rental services

Rising Demand of cars in Sub-

Saharan Region

• Rising demand from international tourists for car rental services

• International tourist arrivals increased to 12.5 million in 2011 from 11.6 million in 2010

• Car rental fleet was ~65,000, generating a revenue of USD 40.8 million in 2012

• Sub- Saharan Region

accounted for 19% of

the total exports in 2012

• Emerging market such

as Botswana, Lesotho,

Namibia & Swaziland are

new export markets

13

Automotive Sector- Inhibitors

Source: NAAMSA National Association of Automobile Manufacturers, Department of statistics, South Africa, Ministry of Transport, South Africa, BRIC summit report

Inhibitors Lack of skilled labor

New car sales may be impacted by Pre-owned car sales

• Steady growth in the used car market

• 5.9 million used cars sold in 2011

increasing at 6.6% from 5.5 million

unit sales in 2010

• 59,097 cars were stolen in 2011

accounting to 10.3% of total new

car sales High Car Theft rate

• Lack of skilled labor in R&D for

automobile industry

Geographical distance

from Major ports

• Average time of delivery takes 26

days through sea

• Major ports in Europe are located

at ~5,200 -5,600 Nautical miles

14

Automotive Sector- Emerging Trends

Mahindra & Kia Motors establishing sales outlets through franchisees

~100,000 cars were leased in 2012 with a growth of 2.1% in 2011

Average monthly income estimated to increase from $ 2,400 in 2011 to $3,300 by 2015

Rising Personal Disposable

Income

Emerging trends in Automotive

industry

Rising demand for car leasing

services

Increase in Franchise Distribution

Models

15

Retail Sector- Overview

68.9

72.2

2011 2012

Retail Industry Size- USD Billion

4.8% Growth

Retail trade dominated by Apparel & textile ~22% &

Food & Beverages ~11% in 2012

Dominant Players: Shoprite Holdings, Pick n Pay,Wal-Mart, Spar group & Metcash

Trading

13.2% GDP contribution by sector in 2011

Retail sector concentrated in Johannesburg,

Pretoria, Cape Town & tourism oriented cities

FDI participation limited to 51% stake in the local retail chains by international retailers

FDI in Retail implemented in 2011

Wal-Mart acquires 51% in Massmart for $1 Billion

58% of internet users prefer online shopping in 2012 compared to 53% in 2010

Mass grocery retail sales growth forecast

$ 72.2 Billion

$ 97.5 Billion

2012

2016

7.8% Growth

Mass grocery retail to contribute $13.9 Billon sales in 2013

16

Retail Industry- Growth Drivers

1.

Rising Middle Class-

consequent demand for retail

products

2.

3.

• Average household income was $2,400 in 2011.

• ~27% of household expenditure spent on food & beverages

• 11 million households are

estimated to have annual

income of $10,000 by 2016

• Retail sector is expected to consolidate in 2-3 years

• Tesco & Carrefour entering the market through mergers & acquisitions

• Improvement in Logistics sector to reduce losses

• Warehouses with an area ~ 80,000m2 to 145,000m2

built in Pretoria, Cape Town, Centurion & Durban

• Government investing $ 352

billion from 2012-2020 on

infrastructure projects

• Wal-Mart entered domestic retail in 2011

• Wart-Mart acquired 51% stake in Massmart for USD 1.8 billion

Increase in Investment in Infrastructure

FDI in Retail Sector

17

•Currency volatility leading to high cost of import & export of retail goods •Rising Petrol & electricity resulting in high inflation of 5.3% & operational cost

• Lack of logistics leading to high operational costs

• Domestic retailers have started operations in Ghana, Congo, Nigeria & others

• Wage rates of labor is ~$ 200- 600p.m.

• Labor consistently engaged in strikes

• Apparel & footwear manufacturing companies shifting to Lesotho & Swaziland due to labor issues

Retail Industry - Inhibitors

Inhibitors Low Labor

Wage Rates

Weak currency exchange

rate & Inflation

Source: PwC

Paucity in retail

infrastructure

18

Retail Industry- Emerging Trends

Emerging E-commerce market

Expansion of Retail Network

International Brands opening commercial stores

• International Brands GAP & Zara opening stores in Sandton in 2012

• Low fixed broadband penetration of 1.9%

• 8.5 million internet users in 2011

• Domestic retailers opening stores in sub-urban areas

• Woolworth is opening a store of 3,200m2 near Johannesburg

Trends

19

227 264

2010 2011

Loans & Advances (USD Billion)

Banking Industry-Overview

424.7 470.1

2010 2011

Total Assets (USD Billion)

42.1 45.2 50.9

2009 2010 2011

External Debt (USD Billion)

Absa, FNB, Standard Bank, Nedbank & Capitec are the major banks

Repo rate of South Africa Reserve Bank was 5% in 2012

Total Banks Deposits increased by 6.5% in 2012

Banking System Rated 2nd by World Economic Forum for

“Soundness of Banks” in 2012

Non Performing Assets % of loan

16.3 % Growth

13 15

5.8% 5.7%

0

10

20

2010 2011

Non Performing Assets

Non Performing Assets as % of Loans

10.7% Growth

Source: South Africa Reserve Bank

20

~1 Million SMB’s in the

country indicates good

market growth potential

~120,000 students availed

education loans in 2012

Education loans distributed

were valued at $400 million

in 2012

5 major banks are

expanding to rural areas.

Absa Bank plans 300 rural

branches by 2014

Micro-insurance bill passed

to promote low cost

insurance products for low

income group people

• Adopting global banking

norms giving a positive

outlook to foreign investors

• The implementation of

BASEL norms shall be

followed till 2018

Banking Industry- Drivers

Shortage of teaching

staff

Huge Small-Medium

enterprise businesses

Demand for loans from Education

sector

Implementation of BASEL 3

norms

Expansion of Banking

Services & Network


21

Banking Industry- Inhibitors

• Poverty rate was 24% in 2011.

• High poverty rate leading to

untimely repayment of loans

• High unemployment rate resulting in low credit borrowings from banks

• Lack of skilled workforce due to low literacy rate of 67%

• Volatile fluctuation in currency

exchange rate having impact on

FDI & FII

•High electricity rate & infrastructure constraint for starting new branches •Decline in mining commodities of South Africa due to slow global economic growth

Operational Challenge Weak Currency High poverty &

unemployment rates

Inhibitors

•Bad debt expenses increased to 36% in 2012


22

Education Sector-Overview

~15.8 million i.e. 3.2% of population is under 15 years

Low Teacher-Student ratio of 1:30 compared to global average of 1:24 in 2011

25,850 25,851 25,826

2010 2011 2012

Schools

4,18,109

4,20,608

4,25,167

2010 2011 2012

Teachers

12.26

12.28

12.43

2010 2011 2012

School Enrolments in Million

7% of GDP expenditure on Education

Government Schools outnumber private schools with a share of ~94% in 2012

Adult Literacy rate ~77%

11 General

Universities

6

Technical Universities

Universities Classification

6 Comprehensive

Institutions

Source: Education Ministry, Department of Basic Education, Council of Higher Education

23

Education Sector- Growth Drivers

• Government promoting education through low interest loans

• Interest rate for repayment is 5.2%

• Education loan is provided without guarantee or surety

• Government initiating

steps to enroll 1 million students by 2014

Lack of educational institutions

Shortage of teaching

staff

• 500 Maths, Science & Computer labs equipped with ICT till 2012

• Government distributing Tablets to promote ICT in education

• Construction of 2 new universities will begin in 2014

• 15,000 students enrollment capacity being planned for Mpumalanga

• University with a capacity of 5,000 students at Kimberly

Implementation of ICT in Education

• 600 more labs to be equipped with ICT infrastructure

• International Accreditation for courses at school level

Increase College

Enrollments

Construction of New

Colleges

Government support for financing education


24

Education Sector - Inhibitors

•92%of the schools don’t have libraries & laboratories in their premises •Lack of skilled teachers to impart education •11 official languages leads to challenge in translation of subjects

• Only 114 private institutions provided higher education in 2011

• 6.1% of the schools were privately owned

• 40% of the students dropped out in 1st year of enrollment in universities

• High cost of education leading to improper payments

• Low penetration of education loans

• 120,000 students out of 735,000 availed education loans

Inhibitors High

Dropout rates


rate & Inflation

Low Participation

of Private institutions

Lack of Educational

Infrastructure in Schools


25

Real Estate - Market Overview

21.4

0.8 0.6

23.1

1.1 0.5

Residential buildings

Office & Banking Space

Retail Space

2011 2012

Office Market: Rise in enterprises resulting in demand for office space in major business hubs

Retail: Foreign retailers establishing themselves in new infrastructure in 2013

Industrial Property: Moderate growth due to slow growth in international economic growth. Growth observed in major ports & cities

South Africa Property market delivered 15.2% Return on

Investment in 2012

Nature of Property

Value ($ Billion)

% Share

Retail 15.9 55.9%

Office 7.4 26.0%

Industrial 3.6 12.6%

Other 1.6 5.5%

Total 28.5 100%

Real Estate Value, 2011

$89.5 billion was the outstanding residential mortgage balance in 2012

Buildings Constructed in Million Sq. Ft.

26

Real Estate - Growth Drivers

• Low interest rates to support purchase of property

• Outstanding mortgage balance increased to $89.5 billion in 2012

• People are moving to the urban areas due to better job opportunities

• Foreign nationals can purchase immovable property without restrictions

• The property purchased needs to be endorsed as non-resident property

Nominal interest rates

leading to property purchase

Ease in property purchase by foreigners

People moving to urban areas

27

Real Estate - Inhibitors

•Bank transactions are being hacked to transfer profits earned by the seller •32 cases were registered till March 2013

• Commissions earned by real estate agents is in the range of 7%-20% which increases the price of property

• ~25% of unemployed people makes the repayment of loans a tough task

Inhibitors


rate & Inflation

High commission rates for real estate agents

Scams in Real estate market

High unemployment rate leading to less repayment

28

Energy Market - Overview

294.5

327.4

313.3

2009 2010 2011

Expenditure on New Energy

Infrastructure Projects (USD Million) 3% contribution to GDP# in 2011

Source: Energy Department, South Africa, Statistics South Africa

Largest Coal reserves in Africa 30,156 million tons

accounting for 3.5% of global coal reserves in 2011

Nuclear consumption was 12.7 Tw (Tera Watt

hours) & Hydroelectricity consumption was 2 Tw in

2011

19 projects given to private players for clean

energy generation in 2012

12.9

13.0 13.2 74.9%

75.8%

76.5%

74%

75%

75%

76%

76%

77%

77%

11.0

11.5

12.0

12.5

13.0

13.5

2010 2011 2012

Electrification Rate (%)

Houselholds Electrification rate

2,13,881

2,22,674

2,22,710

14,304 14,203 13,901

2009 2010 2011

Electricity Consumption & Import (Giga Watt Hours)

Note: # GDP at Constant 2005 prices

29

Energy Market - Growth Drivers

Use of Renewable Source of

Energy

Government initiative to

increase PPP projects

Electrification network

expansion

Government installing Solar water heaters to reduce dependence on conventional sources of power

Association with Netherlands for starting renewable energy projects through Public-Private investments

$11 million being invested through public private partnership for renewable energy projects

$352 million allotted for electrification in rural areas 107,000 new grid connections completed till March,2012

Integrated National Electrification Program (INEP) to connect the underserved rural areas

Government plans to install 1 million solar water heaters by 2014


30

Energy Market - Trends

Expansion in the electrification of

households

Developing wind energy Local firms investing

overseas

• ABSA Capital South Africa in association with Africa Development Bank & World Bank will finance $400 million for generating 2,000 MW

• Construction of wind farms to generate 10 Gigawatts energy by 2020

Trends

• Government plans to attain 85%

electrification rate in households by

2016

Increase in Private sector participation in Clean Energy Program

• Eskom, Nersa, NESCA, CEF Group & other energy producers are actively involved in clean energy management to provide green energy

• Technology from 23 countries being used for the program implementation


31

Healthcare/Pharmaceutical Industry - Overview

~11% of Total Government Budget allocated for Public Health Services

Low Hospital beds per 1,000 people ratio of 28

compared to global average of 30 in 2011

165,371 registered healthcare personnel employed

by private & public sectors

452 public & private hospitals operate in provinces

Low Doctor-Population ratio of ~0.77 per 1,000 ,

2012 271.4

295.3

2012 2013

Healthcare

Expenditure (ZAR Billion)

30.5

34.0

2012 2013

Pharmaceutical

Expenditure (ZAR Billion)

$3.84 billion

$3.78 billion $33.07

billion

$32.86 billion

Healthcare expenditure to increase by 11.7% &

Pharmaceutical expenditure by 8.8% in local

currency

32

Healthcare/Pharmaceutical Industry - Drivers

• Public distribution of ARV drugs reduced AIDS related deaths from 257,000 in 2005 to 133,000 in 2010

• ~1.9 million patients are using ARV drugs for treatment

• HIV infected babies due to infected mothers declined to 2.7% in 2011 compared to 8.5% in 2008

• International association with Cuba, Iran & Tunisia for training doctors

• Doctors from Cuba being recruited for healthcare services

• Government inviting foreign doctors to register for healthcare services

• 3,773 healthcare professionals registered in 2012

• $ 11 million for the construction of 5 hospitals under public private partnership

• ~$75.8 million for HIV & AIDS prevention programs

Government Expenditure to improve healthcare services

International Tie-ups for increasing healthcare

personnel

Antiretroviral drugs reducing death rate due to HIV/AIDS

Growth Drivers

• $18 million for upgrading nursing colleges

• $1.2 billion allocated for development of provincial healthcare services

33

Healthcare/Pharmaceutical Industry - Inhibitors

Source: Department of Health South Africa

• Only 8 million people are covered by health insurance/medial schemes of the government

• Lack of ambulances & intensive care units in rural areas

• Shortage in essential life saving drugs in rural areas

• Low doctor-population ratio of 0.77 per 1000 people

• ~Only 1,200 medical students graduate annually

• ~65% of the people

avoided the use of

protective measures

such as contraceptive

devices

• High rate of

sexually

offensive crimes

• ~2.2 million

rape cases were

recorded in 2011 Inhibitors

Low Medical Insurance

Penetration

High rate of Sexual Crimes

Low use of Contraceptive

measures

Lack of Healthcare Personnel

Underserved Rural areas

34

Healthcare/Pharmaceutical Industry - Trends

Legislation on pharmaceutical emphasizing on

inexpensive drugs compared to branded

medicines

Pharmaceutical Companies making applications

that offer information about drugs to doctors,

nurses & patients ICT integration in

Healthcare 1

2

Increase in Generic Drug

Market

Source: IDC , Frost & Sullivan, The Center for Health Market Innovations

Project Masiluleke provides information on

HIV/AIDS through mobile communication

Healthcare insurers cover expenditure on

generic drugs

35

IT/ITeS Industry - Overview

4,81,000

7,43,000 9,07,000

0.96%

1.48%

1.79%

0.0%

0.5%

1.0%

1.5%

2.0%

0

200000

400000

600000

800000

1000000

2009 2010 2011

Broadband Users Fixed Broadband Subscribers Penetration Rate

38.9

16.9

33.1

43.9

18.6

34.4

Hardware Sales Software Sales IT Services

2012 2013

IT Products/Services Sales figures ZAR Billion

In Local Currency IT sales have inc by QQ%

5.3 5.4 5.2

2.1 2.6

3.3

2009 2010 2011 Personal Computers Laptops

Personal Computers vs. Laptop Sales (Million)

Ranked 72 for IT network readiness index

Only ~9% of the SME used Cloud Computing in 2011 & ~63% of SMEs had websites

Internet penetration was ~17% in 2011 compared to 29% in Nigeria in 2011

8.2% contribution by ICT sector to the GDP

$5.4 billion

$5.3 billion $2.3

billion $2.25 billion

$4.6 billion

$4.2 billion

MTN to start Cloud Computing services to SMEs in 2013

36

IT/ITeS Industry - Growth Drivers

The IT expenditure to increase at CAGR of 13.2% from $523 million in 2012 to $ 860 million in 2015

E-health & mobile health services being implemented to improve clinical practices & healthcare connectivity

Browsing on phone increased from 33% to 41% of mobile phone users in 2012 Mobile downloads increased from 13% to 24 % mobile users in 2012

17,200 km West African Cable System (WACS) linking 14 countries constructed at $ 650 million WACS increased South Africa’s international bandwidth capacity by 5.12 Tbps

ICT in Healthcare sector

Increase in IT expenditure by Government departments

Investment in Under Sea Cables

Increase in Data consumption in phones

Growth Drivers

37

IT/ITeS Industry - Trends

Emerging Trends

Increase in E-Commerce industry

Emerging BPO Market Rise in Digital Mapping

• 76% of corporations & 38% of SMEs spend ~2% of IT budget on digital mapping

• Digital mapping increasing data security by ~61% & productivity by ~48%

• WNS acquired Fusion Outsourcing Services for $15 million in 2012

• Capita Inc plans to invest $55 million till 2015

Trends

• 8.5 million internet users generated

$1.6 billion in 2011 increasing by 30%

from 2010

• B2B E-commerce valued at $4.2 billion

in 2011

Shift in Internet Access points

• Broadband penetration is ~17% due to multiple access through tablets & smartphones

• Wimax Launched by Neotel in Pretoria, Cape Town, Johannesburg & Durban

38

IT/ITeS Industry - Inhibitors

Despite 77% adult literacy, lack of technical skills leading to low employment

~30% of the software are being pirated having an impact on the reseller market

Broadband penetration ~17% only. Broadband infrastructure confined to urban areas

Low competitiveness rank of 72 due to less IT infrastructure

Low IT competitiveness

rank

Software Piracy

Low Broadband penetration

Unskilled Labor

3

4

2

1

39

Telecom Industry – Market Overview

Major Players- Telecom Sector

Vodacom MTN Cell c 8ta

50.9% 33.7% 13.2% 1.8%

65 Million

83 Million

2011

2016

5% CAGR Growth

Mobile Subscribers base Projections

2,635 new Telecom licenses issued in FY’12

4G LTE rolled out in 2012 by Vodacom & MTN in Johannesburg, Durban, Pretoria & Hatfield

Implementation of fiber-optic broadband network across the 9 provinces

4.32

4.23

4.13

2009 2010 2011

Fixed Telephone Lines (Million)

64.3 million mobile subscribers with a penetration of 127%

40

Telecom Industry - Growth Drivers/Initiatives

• Vodacom Launches 4G implementation in 70 small areas of Johannesburg

• Vodacom invested $840 million to implement 4G

• MTN launches 4G/LTE at 500 sites in Durban, Johannesburg, Pretoria & Hatfield

• MTN plans to launch LTE dongles for wireless device users

• Non-profit, community based broadband schemes with low tariff for weak sections of society

• Enable ICT services to physically challenged people

• National Broadband policy aimed to provide optic fiber connectivity

• National Broadband network to be implemented by 2020

• 5,000 km of fiber-optic network cable being constructed by Vodacom, Neotel & MTN

• 12,000 km national- access fiber optic broadband network is being built by FibreCo Telecommunications

• Western Cape province to connect 4,000 government establishments & schools with broadband network

4G/LTE Implementation

for mobile & non-mobile

users

National Broadband Policy to improve

connectivity

Community driven schemes for broadband

41

Telecom Industry – Emerging Trends

Trends

Joint ventures in telecom industry to develop next generation broadband

services. Vodacom, Neotel constructing fiber

broadband network

WiMAX launched by Neotel in 4 major cities.

WiMAX enabling improved access to remote areas

High Mobile Termination Rate(MTR) leading to

cheaper international calls CellC introduced 99cents plan & added 1 million customers in 7 weeks

42

Aviation Sector – Market Overview

Major Players- Aviation Sector

South African Airways

Brirish Airways

Com Air Mango

43.3% 12.7% 11.6% 7.3%

Aviation Sector contributes 2.1% to the GDP ~6.07

billion 2011

3 International Airports & 7 Domestic Airports cater to the aviation sector

Domestic Players dominate the industry with a market share of ~62%

South African Airways was voted as the best airlines in 2012 in Africa by Skytrax

Low Cost carriers gaining importance with new players entering the market. Fastjet entered in 2012

84,292 85,399 89,473

2009 2010 2011

Aircraft Movements

Source: Airports Company South Africa, South Africa Times

24.4 25.1

9.4 9.7

0

10

20

30

40

FY'10 FY'11

Mil

lio

ns

Domestic International

Passenger Movements

2.9 % Growth

3 % Growth

43

Aviation Sector - Growth Drivers

Government initiatives to promote Jobs

Rise in International Tourist Arrivals

Aviation Infrastructure Development

Government initiative to develop & promote air freight logistics for aviation sector $781,000 allocated for managing logistics activities

• 8.3 million international tourists arrived in 2011 increasing by 3.3% over 2010

Drivers

• Aerospace cluster being planned at

Pretoria in association with the US

• 1,500 jobs have been created for

support services to Aerospace groups

as Denel & Aerosud

Low Cost Carrier Airlines Expanding

routes

• Fastjet- subsidiary of Lonrho & Skywise entering the Aviation sector

• Mango, Kulula airlines expanding routes in intra-Africa Market`

Source: Airports Company South Africa, South Africa Times

44

Aviation Sector - Inhibitors

• Only 10 airports compared to 22 airports in Nigeria

• Remote & rural areas connected through rail & road services only

• Only $7.4 million expenditure in aviation incurred by the government in 2012

• 1Time Airlines & Velvet Sky filed liquidation in 2012

• South African Airlines got a $748 million bail out in 2012

Inhibitors


rate & Inflation

Low investment in

Aviation sector leading

to slow growth

Small Aviation Network

Rising operational cost leading to liquidation

of airlines

45

Table of Contents

Summary



Vertical Insights

IT Market Landscape


Connectivity - PC, Broadband and Mobile Penetration

Social Media Penetration

IT Spending estimates and SMB status

Government ICT Plans

46

South Africa to become the 20th largest economy in the world by

2030

Strong growth oriented market and high rated in

governance indicators

Manufacturing is one of the key areas in the

economy

Positive

Positive

Ethnic tensions may impact political and business

enviornment

Growth of economy with 6% increase in GDP for

2012; However government spending accounts for

majority of growth

Negative

South Africa

Negative

Zinnov Management Consulting

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69 "Prathiba Complex", 4th 'A' Cross, Koramangala Ind. Layout 5th Block, Koramangala Bangalore – 560095 Phone: +91-80-41127925/6 First Floor, Plot # 131, Sector - 44, Gurgaon – 122002 Phone: +91-124- 4420100 3701 Patrick Henry Dr. Building 7 Santa Clara CA – 95054 Phone: +1-408-716-8432 21, Waterway Ave, Suite 300 The Woodlands TX – 77380 Phone: +1-281-362-2773

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www.zinnov.com @Zinnov

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For more details and complete copy of the report, write to us at [email protected]