The India-Africa association dates back over a thousand years. Similar historical backgrounds and the achievement of independence have created a strong common foundation for the India-Africa collaboration in the twenty-first century. In recent times, India’s economic partnership with African countries has been vibrant, extending beyond trade and investment to technology transfers, knowledge sharing and skills development. Over the past two decades, India has harnessed the power of information technology (IT) to become the hub of the global IT-BPO industry, reaching USD 100 billion in revenues in 20111. However, while many African countries have gauged the importance of IT in advancing their economies, none of them have been able to keep pace with India2. Learning from the success of IT-based economic growth in India could help African countries bridge this digital divide and improve their competitiveness in the global marketplace.
Africa as an off-shoring destination
The first wave of Indian IT firms that arrived in Africa looked at the continent as an alternative destination for offshore delivery centers. Africa has many of the same advantages that made India a leader in off-shoring IT-BPO services. A relatively low per capita GDP in the region provides African cities with a significant cost advantage. In addition, factors such as the availability of talent, progressing education levels, improving infrastructure and geographical proximity to Europe make Africa an exciting off-shoring destination. Its proximity to Europe — as well as the spread of a diverse set of languages due to its colonial heritage — also makes Africa a preferred choice for many near-shore centers. Local governments ranging from South Africa and Egypt to Morocco have made significant efforts to provide IT-BPO firms with incentives to establish presence in their countries
||Durban, Cape Town, Johannesburg
||IT, Contact Center
||IT, Contact Center
||IT, Contact Center
||R&D, Contact Center
||IT, Contact Center, BPO|
Source: KPMG in India Analysis, Destination Compendium 2010
The booming domestic IT-BPO market in Africa
Over the past decade, rates of economic growth and development in African countries have started to improve. The end of the Cold War and the spread of democracy generated a wave of economic reform across the continent. While countries such as South Africa have very highly developed industrial and services bases to propel their own IT-BPO industries, other countries such as Nigeria and Kenya are also emerging as promising markets for technology firms4. IT-BPO firms ranging from major global players to emerging Indian giants are tapping this lucrative market, which is expected to reach USD 42 billion by 20165. Over the past few years, Indian firms from various industries —from telecom to automobiles — have expanded their presence in Africa through partnerships, acquisitions and greenfield investments. Their Indian IT-BPO vendors have followed them to the African continent and established centers to support these clients.
Africa attracts Indian firmsThe Government of India, too, has started playing an active role with the 54-nation African continent, with a promise to expand cooperation in technology and knowledge. India’s booming economy, the appetite of its public and private-sector enterprises for investment overseas, and its leadership in science and technology have collectively shaped its policy toward Africa. In March 2012, at a conclave held in New Delhi hosted by Government of India, leaders from key African nations and the Indian Government signed several agreements to boost the development of science and technology in Africa. The Indian Government also pledged USD 700 million toward establishing new institutions and training programs. Of this, USD 185 million was reserved for science and technology7
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KPMG in India point of view
After decades of struggle, Africa has emerged as a beacon of economic growth and stability. With the demand for its IT-BPO services rapidly growing, the continent has evolved into an attractive offshoring destination. Indian firms have started to tap this market, and Indian IT companies are at the forefront of this movement.
To make the most of this opportunity, Indian IT-BPO firms should follow a multi-phased strategy. The first measure would be to set up off-shoring centers in an African country that combines excellent delivery location characteristics with a promising domestic market. These delivery centers should focus on basic application development, maintenance and BPO tasks, as Africa provides a large talent pool in these arenas. Initially, companies should focus on understanding the local culture and business environment and associated technological challenges. The second phase would involve tapping the domestic market using a local sales force. Indian firms can could consider leveraging global capabilities and offer to execute such contracts collaboratively, through both Africa and Indian centers.
As parts of the continent continue in their struggle to strike a balance between economic growth, social development and political freedom, a certain degree of risk is involved. However, investors are becoming increasingly cognizant of the fact that the risk of ‘not’ investing in the continent may be greater. Overall, the outlook for economic growth in Africa is favorable, and the business environment in the region has improved, driven by various business reforms under the guidance of the International Monetary Fund (IMF). As such, as the potential size of the African consumer market grows, the region is likely to present considerable opportunities for foreign investments, and a systematically formulated approach may help Indian firms ride this wave of growth.
1.NASSCOM Strategic Review 2012
2.KPMG in India Analysis
3.Destination Compendium, 2010
4.Developing an African Off-shoring Industry—The Case of Nigeria, Ismail Radwan and Nicholas Strychacz, May 2010
5.Africa ICT Market Forecast, IDC, 2012
6.The Hindu Business Line, March 9, 2012, http://www.thehindubusinessline.com/industry-and-economy/info-tech/article1523196.ece
7.Ministry of Information Technology, Government of India, www.mit.gov.in/content/africa
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