IBM Invests In Africa – ‘The Next India, The Next China’

IBM In Africa Highlights

• Increased its presence from 4 main offices to over 20 today
• Established a number of new locations to service Bharti Telecom
• Has a high-end systems strategy
• Sees Government, Banking and Telco as the strongest industry sectors
• Runs regional management from Morocco, Tunis, Cairo, Nairobi and Johannesburg
• We see Africa as a small region with tremendous growth prospects, dependent on long-term socio-economic trends

If you agree with our prediction that 2012 will be an important one for the development of ITC markets in Africa, you’ll be interested in looking at what IBM is doing to develop IT business there. The information included here is drawn from a presentation by Takreem El-Tohamy, IBM’s General Manager of Middle East and Africa at its recent analyst meeting in Rye Brooke, New York.

The African IT Potential

Takreem’s review of the African market began with an observation that it is made up of young countries with immature legal and economic development. He outlined a number of forecasts from the World Bank, IMF and press reports. In particular:

• GDP in 2015 will be $2.5T, according to forecasts with growth of more than 10% in several countries; South African GDP is expected to be just 19% of the total – a stark contrast to the 70% it represents of IBM’s revenues today (our sizing suggests that South Africa accounts for 22% of ITC spending in 2011 – see Figure 1)
• Foreign direct investment in 2010 was $554 billion, with a CAGR between 2002 and 2009, which compares favourably with the $198 billion investment in India over the same period
• The continent has over 75 major companies with revenues over $3 billion
• A growing middle class, with a forecasted 87 million middle income families by 2015
• Large cities – 52 of which have more than 1m people, which is more than Europe
• By 2040 it is expected to have a massive working age population of 1.1 billion – more than China or India

Of course Africa is very multi-cultural, not least in the many languages spoken, which include many indigenous languages and quirks such as the need to speak Portuguese in Angola (something IBM’s strong international presence helps with).

IBM Re-Enters The African Market

IBM has a long history as a supplier in Africa, having re-entered South Africa after the fall of apartheid and maintaining offices in Morocco, Tunisia. It expanded into Senegal, Nigeria and Tunisia, but reduced its presence in the 1990s.

It has now expanded from 4 main offices in 2006 to over 20 today. Regional management is based in Morocco, Tunis, Cairo, Nairobi and Johannesburg. In addition to its own offices it has set up a number of local facilities to service Bharti Airtel Recent developments including both a software and delivery centres in Cairo.

IBM’s offerings in Africa are similar to those in other regions. In particular it seeks to add value in:

• Services – by participating in selected transformational deals, integrate with hardware and software
• Hardware – by offering high-end systems and expanding its routes to market
• Software – through leverage as a key differentiator and offering IBM middleware as industry standard

It has demonstrated in other emerging countries an ability to sell high-end systems – delivering System z mainframes to many Chinese Finance companies as the market there opened up for instance. Takreem indicated that IBM does not produce separate products for African customers – rather leveraging its existing ones and fitting them to the specific market needs of the region. IBM’s expansion plans in 2012 include opening new offices in Mauritius and in Rabat, Morocco.

Building A Wider Presence

Government, Banking and Telco are expected to be the highest spending, while Insurance, Financial Markets and Media & Entertainment, the highest growth. Our forecasts are less optimistic, although we believe the ITC market in Africa grew 10% in 2011 to $126 billion. Following its high-end strategy it has now installed its System z mainframes in Namibia, Cameroon and Senegal, adding to those already running in South Africa, Egypt and Morocco.

IBM’s Reference Customers In Public, Banking And Telco Sectors

Takreem reports that African customers are determined to get the latest hi-end servers and storage and highlighted a number of reference clients, including:

• The First National Bank Namibia
• Commercial Bank of Ethiopia – focuses on offering services to rural communities; it has built 500 new branches in 3 years and a new core banking system based on IBM hardware and software
• The National Microfinance Bank in Tanzania
• Bharti Airtel – a Telco experiencing major growth we came across in our discussions with Sean Finnan; IBM’s support includes establishing service centres in 16 countries
• Customs Directorate and Ministry of Finance Senegal
• Ministry of Finance in Cameroon
• Gauteng Fire and Disaster Management Centre in South Africa
• 5 Banks in Kenya and Safari.com

All of these fall into the largest industry sectors identified in its Global Market View ( GMV) database and have a similar profile to IBM’s overall customer base.

IBM’s 2012 African Expansion Plans

IBM’s African strategy is to increase its market share in Unix servers with its Power systems, as well as in x86 server and storage systems areas. It wants to make the most of the movement of the population from the country to cities with its Smarter Cities programme, although it also wants to use Cloud Computing to reach rural users. In the Finance area it is focusing on Core Banking and risk management and wants to help the expansion of banks in South Africa, Egypt and Morocco into other African countries. In Telco it is promoting its network management and analytics-based customer management.

Takreem mentioned IBM’s main competition as Microsoft, Wipro, Tata, Oracle and Chinese companies, with local African companies havening become stronger over time. Chinese companies are a major influence on the continent, especially in the exchange of infrastructure provision at the government level in exchange for access to Africa’s massive mineral resources. We were surprised that he didn’t specifically mention HP or Cisco, who also has a strong African presence, with major development plans in place.

HR and Talent Strategy

Takreem stressed that IT skills are scarce and very valuable in Africa, which applies to IBM’s partners who need not only a strong local presence, but also the technical ability to support customers: it is involved with a number of training programmes with partners as a result. For IBM itself he sees local leadership as essential – having had a local office in Egypt since the 1940s is an important element in its success there. From an HR perspective he observed that you need to develop talent, taking into account the cultural need to support children and extended families in building the business infrastructure.

Some Conclusions – IBM’s African Success Will Depend On Large Companies And Broad Socio-Economic Moves

Takreem is very optimistic, claiming ‘Africa is the next India, next China’, but you shouldn’t expect its strategy to vary significantly from other regions: its focus on large companies, Banking, Public and Telco accounts, servers and storage systems is very familiar. It is prepared to make significant investments to accommodate the immaturity of IT usage and scarce technical knowledge in many countries – witness the establishment of 16 service centres for Bharti Airtel for instance. It will need to pursue a more services-based approach for many other customers. As in Eastern Europe large companies in Africa have the ability to leap-frog those in mature countries by adopting new technology without the need to consolidate earlier implementations.

It has managed through the ‘Arab Spring’ social uprisings in the North in 2010 through well through its long-established local presence. For the future its success will be tied to the establishment of more open markets in these countries, as well as a move towards market economies in many others. It will have less competition in Banking and Financial companies due to its significant lead in mainframe systems and associated workloads, but will find itself going head to head with other global suppliers in most other sectors. Its potential  of making a strong business with Smarter City solutions will be very dependent on the availability of large budgets, although it may well be able to accept minimal profit margins in order to win long-term contracts.

IBM’s story is fascinating and we’re very eager to hear from African IT users and other suppliers in order to build our knowledge of this important market.