ANC political crisis spells uncertainty for South African BPO sector

Leading UK-based independent market analyst Datamonitor cautions against sudden BPO divestment from South Africa, due to its strong value proposition.

The recent firing of President Thabo Mbeki by South Africa's ruling party, the African National Congress (ANC), has precipitated one of the most tumultuous periods in the country's political and economic history since the fall of the Apartheid regime 14 years ago. These events could also BPO firms providing services to offshore clients to reconsider existing and future investments in delivery from South Africa.

Since landing on the BPO map, there is little doubt that South Africa has proven itself to be one of the most attractive locations for providing a multitude of third-party business support services. Notwithstanding legacy problems, including a high incidence of HIV/Aids among the overall population and the challenge of developing comprehensive education and infrastructure programs, offshore BPO investors have enthusiastically invested in South Africa due to what they see as a level of commercial sophistication and economic stability virtually unparalleled anywhere in sub-Saharan Africa.

Successive post-Apartheid governments have focused on maintaining a good business climate, which has led a number of global contact center and back-office firms to invest across the country with the intention of providing support to end-users overseas.

Caution called for

However, it is clear that many of these same firms may begin to question their current deployments in South Africa, based on recent events. For one, while it was anticipated that Mbeki would be replaced as president in 2009, business confidence among overseas investors is unlikely to be strengthened by what amounts to a bloodless coup by ANC members backing designated presidential candidate Jacob Zuma. Zuma is seen by many in the business community as excessively left-wing compared to the centrist Mbeki. Furthermore, many have questioned how transparent his administration would be, given his various legal issues.

The economic chaos in South Africa's financial markets on September 23 serves as an example of recent political manoeuvrings, and will not have gone unnoticed by overseas BPO investors. Not only did the rand lose nearly 3% relative to the US dollar following the announcement of the resignation of several cabinet ministers, but Johannesburg's Top-40 stock index also slumped downward.

Despite the announcement of an interim President, Kgalema Motlanthe, who has been called a 'safe pair of hands' by some, it will take considerable efforts on the part of the new administration to reassure investors who may be worrying about long-term delivery prospects from South Africa.

However, Datamonitor believes that current and prospective BPO investors should tread with a degree of caution over the coming months. While recent events have highlighted potential internal political schisms within the ANC, South Africa still remains a viable location for many offshore functions.

Its labour pool is substantial, and it remains a low-cost location relative to Western Europe, North America and Australia/New Zealand. There is no doubt that, until the 2009 elections, the potential for instability exists. However, equally, the large-scale benefits of the BPO sector have not been lost on opinion leaders and government officials in South Africa, few of whom are likely to place this sector's long-term development at risk.