Channels of and Constraints to Technology Absorption
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Constraints on enhancing technological competencies. The ability to attract and retain skilled ICT professionals is central to the sector’s firms so they can keep up with global developments in the sector. The skill shortages in South Africa and the consequently rising wages thus pose a significant constraint to this sector. In addition, high broadband costs constrain the sector’s firms. Skill shortages. As highlighted previously, the competitive edge of these firms has been their ability to attract highly skilled software developers. Initially South Africa also had a cost competitiveness that is now being eroded as a result of its skill shortages and increasing wages. The skill shortage was highlighted by all the firms interviewed. Generally this related more to quantity than quality, though one respondent noted a marked decline in the quality of graduates from second-tier institutions. Also, so few first-tier applicants are available that some firms are forced to employ workers from India at a substantial relocation premium. Moreover, labor turnover is significant, with one of the firms citing turnover rates of 10 percent per year. The skill shortage is compounded by black economic empowerment (BEE) policies, which come into play when servicing South African clients.12 The skill shortage is even more pronounced in previously disadvantaged groups, making qualified black ICT professionals difficult and costly to hire. One firm was very concerned about the possibility of BEE being extended to foreign client service, a move that could force disinvestment in South Africa. The lack of regulatory certainty in this regard is already perceived as constraining development, suggesting that the government should look into at least temporarily relaxing BEE stipulations in underrepresented sectors. Two of the three firms have operations in India, where they had recently hired most of the software developers because they were unable to successfully fill vacancies in their local South African offices. Intellectual property ownership. One firm noted that the restrictions on the movement of intellectual property, specifically the lack of freedom to move it offshore, act as a significant disincentive to technology upgrading. Permission has to be obtained from the South African Reserve Bank and is rarely granted. As a result, a number of South African ICT firms with potential global prospects have not been able to move their intellectual property offshore, which makes accessing international venture capital to fund expansions abroad very difficult, if not impossible.