Worries over austerity and government IT spending

Finance minister Enoch Godongwana presented the grim reality of South Africa’s poor fiscal position in his medium-term budget speech last month, announcing spending cuts of R200-billion over the next four years.

These austerity measures will likely have an impact on government IT spending, although there has been no formal directive in this regard. With the potential for less spend on ICT, the industry could feel the impact of the austerity measures — particularly those companies that have a large reliance on public sector contracts.

“Total ICT spend for South Africa is estimated at US$30-billion for next year. Government is only second to the financial sector as the biggest spender in the industry,” said Mark Walker, associate vice president for sub-Saharan Africa at International Data Corp (IDC).

“If government cuts spending, there will definitely be knock-on effects downstream that will affect IT service providers as well as hardware and software vendors,” Walker said. He added that government is going to have to be prudent in how it goes about cutting costs. “The projects that give the best value for money and the most benefit to society should take priority.”

But eliminating one project over another is not the only way the state can reduce spending on technology. In certain instances, money can be saved by rooting out inefficiencies. In a recent interview with TechCentral, BCX CEO Jonas Bogoshi highlighted some of the positive aspects that reduced spending may have on government’s IT function.

“Depending on how we look at it, it may actually be the right thing for government today because typically when you buy your own infrastructure you create inefficiencies. You most likely use only 80% of what you paid for because you have to overbuild just in case you need it,” said Bogoshi.

Government IT spending

Part of the solution, he said, is for government’s on-premises IT function to be migrated to the cloud. BCX has already deployed on-premises solutions to about 70 municipalities that it now wants to move to the cloud. If that happens, these municipalities will have less need to spend money on hardware, while the staff complement required to manage their systems will be reduced as well.

“Cloud is a different ballgame because you don’t have to procure or manage physical infrastructure, so the costs are much lower. We are partnering with government to develop a model where we can work within the constraints of the fiscus.”

Government has the potential to realise significant longer-term savings if it chooses to focus on a state-wide cloud migration effort. However, hardware vendors are likely to suffer if this happens.

Read: South Africa’s ‘no good news’ mini budget

“Many hardware vendors might be expecting state entities to replenish ageing equipment bought before or during the Covid-19 pandemic,” said Walker. On the other hand, software vendors, consultants and cloud solutions providers will be needed to implement the modernisation effort since government does not have the capacity to implement these projects itself, he added.

But some in government are adamant ICT spending will not be reduced, despite the parlous state of the country’s finances. The department of public service & administration (DPSA), which houses the Government IT Officers Council, or Gitoc, told TechCentral that there is “currently no specific policy or directive in place to decrease government ICT spending”.

“There is no decision to slow down government spending on ICT,” said Moses Mushi, director of communications at the DPSA. “Any cost containment measures taken are temporary and align with broader spending and austerity measures in government.”

The State IT Agency, which is responsible for a significant amount of public sector IT procurement, did not respond to multiple requests for comment.  — © 2023 NewsCentral Media

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