BPO incentives to drive growth

5 July 2007

South Africa is looking toward the business process outsourcing sector to help drive economic growth, and is offering potential investors incentives in the form of start-up and expansion grants and developmental pricing for telecommunication, said Trade and Industry Minister Mandisi Mpahlwa.

BPO involves relocating certain business processes that are usually performed in-house by a company, to a third party service provider, such as customer care or call centres, to carry out the services on behalf of the concerned company.

Addressing the media in Pretoria this week, Mpahlwa said the incentives comprises a grant towards approved qualifying expenditure for start-ups and expanding BPO operation, aimed primarily at serving offshore clients.

In March, it was announced that the government had set aside R1.1-billion, which includes a R100-million contribution from the Business Trust, to used for incentives in the sector, which will be effective until March 2011.

However, Mpahlwa said the cost of telecommunications has been a harmful factor in attracting global investors: “The cost of telecommunications is crucial if we are to succeed in attracting investment.”

“It is a concern to us and we have not really concluded work on issues such as developmental pricing and benchmarking telecom prices,” he said.

However, Mpahlwa said the government was working to improve affordability and access to broadband technology, as well as finalising the issue of developmental pricing in the sector.

During a media briefing following the tabling of the first annual report on the Accelerated and Shared Growth Initiative for South Africa (Asgi-SA) in March, Deputy President Phumzile Mlambo-Ngcuka said that the government was working with operators such as Telkom to ensure that costs were reduced.

This sort of arrangement has been termed developmental pricing, with state-owned electricity utility Eskom being the first to use such pricing, in an effort to secure investment toward an aluminium smelter in the Coega Industrial Development Zone, outside Port Elizabeth.

Grants for seats
The Business Day reported in March that companies investing in new call centres in South Africa, depending on the size of the investment and the number of jobs created, could claim grants of up to R60 000 per call centre seat.

One “seat” could provide jobs for up to three people, depending on how many shifts the company operates.

A company employing between 200 to 499 people, with an investment expenditure of at least R74 000 per seat, would qualify for a grant of R37 000 to R44 600, while a company employing more than 500 people with a qualifying investment of R89 200 per seat could receive up to R52 000.

“This support package is in line with our national industrial policy framework, which recognises the services sector as a significant element of our growth strategy,” Mpahlwa told BuaNews in March

Traditionally, countries such as India and the Philippines have led the way in servicing markets for the United States and Britain, among other countries. South Africa is quickly catching up, however, thanks to a range of factors working in its favour.

South Africa is mainly targeting clients from the UK, Europe and the US due to closer cultural ties, use of the English language and, in the case of Europe, being in a similar time zone.

Key to growth and employment
BPO is considered a key sector under the Accelerated and Shared Growth Initiative for South Africa (Asgi-SA), which seeks to achieve an annual economic growth rate of 6% between 2010 and 2014, in order to halve poverty and unemployment by 2014.

Upon announcing the incentive scheme in Pretoria in March, Mpahlwa said the sector had the potential to create up to 25 000 direct and 75 000 indirect jobs, and contribute about R7.95-billion to the country’s economy, by 2009.

“In the first six months of 2006, South Africa created 3 000 jobs in this sector. Based on this evidence, we are of the view that we should achieve our targets of 100 000 new jobs by 2010,” he said.

According to Business Day, the local call-centre industry has grown by some 8% per year over the last four years, and currently employs some 54 000 people and contributes 0.92% to South Africa’s gross domestic product (GDP).

However, Mpahlwa said, there was considerable evidence to show that the South African services sector was not achieving its full potential contribution to growth, employment and human development targets, hence the incentives.

SouthAfrica.info reporter and BuaNews