Report, Changing markets driving gradual increase in EAS spend

Despite economic uncertainties and political instability, large and medium-sized organizations in South Africa continue to steadily increase their software investments to quickly respond to changing market conditions and enhance their core competitiveness. This has been revealed in the International Data Corporation’s recent South Africa Enterprise Application Software Market 2017–2021 Forecast and 2016 Vendor Shares report.

According to Mervin Miemoukanda, Senior Research Analyst: Software and Market Intelligence in Africa at International Data Corporation (IDC), despite large organisations remaining the primary source of on-premise enterprise application software (EAS) spend in 2016, the small and medium-sized enterprise (SME) segment has emerged as one of the key adopters of cloud-based EAS offerings, and will likely remain so over the next three years.

“The continued depreciation of the South African Rand has had a crippling effect on IT budgets in general,” he says. “That said, some large and medium-sized organizations have already reprioritized their IT spending, and renegotiated software licensing and maintenance costs.”

The performance of certain vendors has also been impacted because of the currency volatility, and economic and political uncertainty, with some vendors’ revenue growth, slowing to low single digits in 2016. “The South African EAS market was valued at $396.09 million in 2016, with the depreciation of the rand having had a devastating impact on the overall market during the year. Some vendors recorded notable declines in their license and maintenance revenues, but these declines were partially offset by the increasing uptake of cloud-based EAS solutions in lucrative verticals such as manufacturing, retail, telecom, and finance,” says Miemoukanda.

Enterprise resource management (ERM) remained the most lucrative functional area of the EAS market in South Africa in 2016. The second-most lucrative functional area was business analytics (BA), followed by customer relationship management (CRM) and supply chain management (SCM).

“SAP still led the South African EAS market having increased sales of its cloud offerings, which became one of its best performing business areas during the year. Also in the top five were Oracle, Sage, Microsoft, and Syspro,” he says.

The process manufacturing vertical was the top spender on EAS solutions during the year, followed by discrete manufacturing, combined government (central and local government) and banking.

IDC projects that the EAS market in South Africa will expand at a compound annual growth rate (CAGR) of 2.2% across the five-year forecast period. This low-single digit CAGR is, however, dependent on the country’s future economic outlook, particularly as the country’s credit rating may be downgraded to junk status by major rating agencies in the coming months. “Should this downgrade occur, the CAGR may fall below 1%, as the expected depreciation of the local currency will considerably erode the purchasing power of most organizations and consumers. Junk status would also discourage domestic and international businesses from investing in the country,” says Miemoukanda.

He advises EAS vendors in the South African market to develop more cloud offerings in 2017. “Cloud services represent significant growth opportunities for vendors. That said, they must address customer concerns about security and service availability. Vendors should also take advantage of the implementation of the Municipal Standard Chart of Accounts (MSCOA) as this will give them the opportunity to strengthen long-term relationships with municipalities.”

Another opportunity for vendors lies in the continued enhancement of business analytics solutions. “There is growing demand for business analytics solutions in South Africa, driven by the rising interest in digital transformation. Finally, vendors should actively prepare for continued depreciation of the local currency in the coming years, by addressing Rand volatility early and providing appropriate pricing to their existing and potential customers,” says Miemoukanda.

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