South Africa emerging offshore destination

BANGALORE, INDIA: Everest Group has released the findings of its latest and most comprehensive study on South Africa’s BPO industry, titled “Ready to compete: South Africa’s BPO capabilities in the Financial Services sector”. Everest conducted this study with Letsema Consulting on behalf of a South African government and industry partnership, which comprised of “the dti”, Business Trust and BPeSA (BPO industry association). This report provides a comprehensive fact-based view of South Africa’s current BPO capabilities and its growth potential in the Financial Services (FS) sector.

Brian Whittaker, CEO of South Africa-based Business Trust, says: “BPO is one of the priority sectors for growth in South Africa. Our target is to achieve 100,000 direct and indirect jobs by 2009; and we have already made significant progress. Various public and private sector initiatives have been put in place to attract more offshore BPO jobs to South Africa. This report provides potential investors with a level of fine-grained information to support the business case for investing in Financial Services (FS) BPO in South Africa”.

Elaborating on the findings of the study, Nikhil Rajpal, Principal, Everest Group, adds: “South Africa presents a significant opportunity for global financial services firms looking to expand their offshore footprint. It offers a 50-60 percent operating cost savings potential over western markets. Further, we observed that the savings gap between Johannesburg and a low-cost offshore destination like Bangalore has decreased from 30 percent in 2005 to 15 percent in 2008, and could further decrease to just 8 percent in 2012.

One of the reasons is that while most other currencies have appreciated on average over the last three years, the South African currency has depreciated. Also, inflation levels in South Africa are lower than other low-cost destinations like India and Philippines. If we take into account the impact of lower attrition in South Africa, the savings gap is even lower.” There are eight established delivery locations in South Africa, with the key ones being Johannesburg, Cape Town and Durban, he said.

South Africa presents a significant potential for growth driven by various factors including a large experienced talent pool with service delivery and domain skills in the domestic FS industry; sizeable pool with specialized skills; narrowing of savings gap; and, availability of scalable, high quality English skills, at a low cost.

The study further shows that the FS-focused BPO industry in South Africa has established significant scale with ~11,000 employees in service providers (includes suppliers and offshore captives). This scale is comparable or larger than several other emerging global sourcing destinations like Jamaica (2-3k), Romania (5-7k), Czech Republic (7-10k), Malaysia (13-15k) and Argentina (20-25k).

The study shows that the service provider industry in South Africa has established credible delivery across FS sub-verticals (retail banking, insurance, asset management) and across BPO functions (front and back-office). The industry is delivering robust cost benefits and is meeting client quality and service level expectations. Further, it is evolving to deliver additional benefits beyond labor arbitrage. In addition to the service providers, South Africa has 65,000-75,000 employees in domestic captives of South African FS companies.

H.Karthik , Research Director, Everest Research Institute, says: “FS BPO service providers in South Africa have credible delivery maturity. As many as 240 FS clients are currently being served. While front-office remains a key strength with about 6,000 employees across inbound and outbound functions, significant back-office activity also exists, with about 5000 employees. Almost 75 percent of outsourceable FS back-office processes are currently being supported. There are early successes in offshore delivery of complex back-office processes, such as actuarial modeling and investment management.”

Elaborating on the specialized FS skills available in South Africa, Nikhil Rajpal says: “The potential that South Africa offers becomes evident if you compare the scale of specialized FS skills available in South Africa versus other offshore destinations. While not the largest in every domain, there are clearly certain pockets of meaningful scale.

"For example, South Africa has 770 actuaries, as compared to 225 actuaries in India, 65 in Philippines and 80 in Czech Republic. Also, there are several universities and FS industry-specific training courses in South Africa that provide specialized qualifications. Universities offer B.Com specializations focused on financial services (e.g. Actuarial and Financial Mathematics, Investment Management), which produce about 4,500 graduates annually in these courses. Then, there are various industry-specific training courses and certifications. BANKSETA (Banking Sector Education Training Authority), INSETA (Insurance SETA) and FASSET (Financial and Accounting Services) enable financial services training for students and employees.”

The study estimates the total entry-level talent pool for BPO in South Africa to be ~470,000 annually, including high-school graduates. Besides scale, South Africa has strong English proficiency and cultural affinity with Western geographies like UK, observed Karthik. Other advantages include robust physical infrastructure and a good expatriate quality of life, he points out. 

Commenting on South Africa’s growth potential as an offshore destination, Rajpal says: “South Africa is one of the few global sourcing destinations beyond India and Philippines that can offer sizeable and good quality English language skills at a low-cost. Latin American countries such as Argentina face challenges with good English skills. Nigeria, Jamaica and Kenya have smaller labor pools. Canada and Northern Ireland have higher costs. Mexico and Czech Republic too are more expensive relative to South Africa.”

Applauding the efforts made by government and industry in South Africa, he adds: “To help provide a fillip to its BPO industry, the South African government offers capital investment incentives, which can offset companies’ capital expenditure by almost 50 percent. It also offers training incentives, through which companies can save upto 5 percent of their operating costs. The South African BPO industry has worked for three years with the South African Bureau of Standards to develop internationally-focused and aligned, industry-specific standards for BPO.

According to the report, South Africa can play multiple roles for investors in the FS BPO space. These include: offshore destination for high-quality English language front-office work; offshore destination for complex FS back-office work; near-shore scalable destination for sub-Saharan Africa; risk diversification option for India/Philippines.