Thursday, 15 October 2020

Youth training initiatives and economic shifts position SA as major international business outsourcing destination

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Government and private sector efforts to build digital skills capacity among South Africa’s youth over the past five years are bearing fruit.

According to Andy Searle, CEO of Business Process Enabling South Africa (BPESA), a non-profit organisation responsible for promoting South Africa as a services delivery destination,  these initiatives, along with several other factors, have favourably positioned the country as a global destination for outsourced projects.

“There has never been a better time than now for the country to begin securing sizable and scalable business services projects and for the tech sector particularly to create meaningful employment opportunities,” he said.

Searle’s comments are supported by a recent McKinsey report, which views the country’s strong operational and service capabilities in the Business Process Outsourcing (BPO) sector as among the reasons that service exports have been identified as an inclusive growth sector in its “South Africa Big Five” report.

In particular, the nation’s standing as a key BPO player has been reinforced over the past six months. While lockdown measures to contain the Coronavirus compromised business continuity across the world, South African contact centres were quick to migrate to remote working models and were able to remain operational with minimal disruption for clients.

Potential and existing outsourced services offerings extend across multiple industry sectors including finance and accounting, telecommunications and media, human resources and even legal services.  Opportunities include call centres, shared and education services, animation, gaming and robotics.

South Africa has seen a 22 percent annual increase in international business services (GBS) projects over the past four years.

“South Africa’s business services sector has established itself as a dependable, world-class delivery location that can serve the international market at scale,” Searle said.

Why has South Africa become so well-positioned so quickly?  What has changed in those five years?  According to Searle, two broad factors are responsible.  The first was a series of changes in the world environment and the second, constructive changes that have been explicitly driven by various players in South Africa.

The COVID-19 pandemic with accompanying lockdowns and international tensions are also definite drivers.  “Key countries this year have realised that they have become too vulnerable when placing all their projects in a single geography. They have actively sought to spread their risk by moving some work to new territories.  In addition, the simple economics of South Africa’s attractive currency exchange rate with the key buying markets, combined with very compelling government incentives, makes sourcing services here more cost-effective,” Searle says.

Youth tech training bears fruit

But mostly it is the impact of government policy and effective training of young talent in South Africa that has had the biggest impact, and which has enabled the country to begin managing projects of global size, scope and scale.

Searle explains, “Large scale investment in training of mainly youth, excluded from access to good employment opportunities by various social, economic and spatial constraints, has strengthened South Africa's value proposition immeasurably, where so much value is placed on the distinguished quality of service these young people deliver.  The digital skills partnership and the initiatives of the Department of Trade, Industry and Competition have been pivotal.

These initiatives include the approximate R1.6-billion investment by Government in the global business services sector to-date to attract investment, as well as an additional R1.2-billion committed in incentives to improve the sector's competitiveness and ability to move up the value chain.

These trends have escalated the attractiveness of South Africa as a business outsourcing hub.  Underpinning these initiatives is the fact that the country has deep domain skills.  For example, the country has over 2 000 qualified actuaries and 5 000 legal and 12 800 Masters students who graduate annually.

South Africa’s telecommunications infrastructure is also one of the most advanced on the continent, with a network that is 99.9% digital and includes the latest in fixed line, wireless and satellite communications.

Cost arbitrage for voice and non-voice services are particularly favourable.  Voice-based BPO delivery costs are 65% lower as compared to source destinations, such as the UK, US, Australia and Europe.  Similarly non-voice BPS delivery costs are 60% percent lower.

Huge potential

“South Africa offers significant cost to quality benefits for service delivery as compared to the major source geographies and many other delivery locations,” Searle said.

“The potential is vast,” he says.  “61% of services delivered from South Africa are to the UK, while in North America it’s 18%, Australia 11% and Asia and other territories is 9%.  The North American outsourcing market alone, prior to the COVID-19 pandemic, was awarding contracts valued in excess of $260-billion annually.  If we as a country can secure just one percent of the US market, imagine the impact on job creation.”

Data science weighs in

An exciting component of the future growth of the GBS business in South Africa is an ambitious plan by the EXPLORE Data Science Academy, Africa’s largest privately-owned training facility for data scientists, to diversify its operations by opening its own international data service centre.

Shaun Dippnall, CEO of Explore, explains, “Our academy has trained 1 000 data scientists in three years, over 90% of whom have been placed in jobs. Now we plan to expand our operations and employ many of our own graduates in our own in-house GBS facility to serve international clients.  This way we aim to help address South Africa’s chronic youth unemployment and skills shortage challenges.”

Searle confirms Dippnall’s opinion.  “There is continued strong support from government in granting ‘priority” status to the GBS sector to encourage private sector investment.  This new GBS initiative is a perfect development for them.”“South Africa is now well-positioned to move up the value chain with its offshore service offering and to attract work back to the country that was previously off-shored, thanks to significant upskilling in information technology and data science over the past five years.  And with the proven entrepreneurial skill of players such as EXPLORE, the future looks bright for many bright and ambitious young South Africans,” Searle concludes.