Industry Research : Weak Rand Bodes Well for BPO
The weaker rand should open SA up to more business process outsourcing companies, says BPeSA CEO Gareth Pritchard.
The consistently weak rand has improved SA’s cost competitiveness in the outsourcing space, and is good news for the business process outsourcing (BPO) sector.
Gareth Pritchard, CEO of Business Process enabling SA (BPeSA), says the impact of the weakened rand should open up the destination to a host of new companies, a number of which are willing to pay a slight premium to offshore customer service functions to SA.
In the middle of the year, the rand hit its weakest level in four years, and is now holding just shy of the R10 to the US dollar mark.
BPeSA notes that the cost of offshoring business to SA continues to fall, and the weakened rand is expected to drive significant investment from international markets, such as the UK, over the next 12 months. The contact centre industry grew about 13% last year and should add around 30 000 new jobs by 2016, based on the progress the Cape hub has made.
Peter Ryan, Ovum analyst, wrote last month that SA’s cost competitiveness has been boosted by the rand’s fall, which was pronounced over the past 12 months. "Against the Australian dollar and British pound, the rand has fallen 17% and 20%, respectively, during the past 12 months. This generates immediate cost savings for enterprises doing business with outsourcers based in SA."
Ryan points out that this contrasts with SA’s two largest competitors, as both the Philippines and India have seen their currencies strengthen. He says the decline in the rand has made SA – typically an expensive destination – more competitive than other locations. "This is good news for outsourcers chasing new contracts and renewals in the UK and Australia, both of which are target markets for [BPeSA]."
In 2011, BPeSA – an umbrella body for the sector – said about 30 000 jobs should be created in the sector by 2016. Last year, Prichard said the Western Cape's aim was to create about 5 000 jobs over the next three years.
The Cape province, which accounts for about 65% of the local industry, added 2 600 jobs last year, and, extrapolating these figures, the country added around 5 000 jobs in the sector.
The boost has been partially attributed to a government incentive, introduced about two years ago, in a bid to attract more investment to the sector. The scheme aims to trim operating costs and will pay investors for each full-time job created and maintained.
Local and foreign investors, registered as legal entities in SA, will be eligible for the programme if they create a minimum of 10 jobs.
The plan replaced the Department of Trade and Industry’s Government Assistance and Support Initiative, but was criticised for the amount of red tape involved in accessing the funds.
Last November, trade and industry DG Lionel October told Parliament that the department had approved 23 projects, with the potential to create 15 000 jobs. At the time, although grants had been approved, only a portion had been paid out.
Ryan says the rand depreciation could not come at a better time for SA, especially given the price sensitivity being felt by enterprises across Western markets.
However, notes Ryan, apart from the weaker currency, outsourcers and their clients will look at the ongoing political and economic stability of SA, which has avoided major controversy since becoming a BPO hub. "Political disruption caused by frequent confrontations between unions and management in the mining sector, as well as a slowdown in economic growth, could cause investors to re-evaluate the market."
Posted by Veronica Silva Cusi, news correspondent
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Published: Monday, May 6, 2013