The oasis beckons

Bharat Kumar

LET someone tell you he hopes to make money in Africa and what strikes you first? Diamonds? Animals? Trading?

Okay. Brace yourself for it. It's software this time. Yes, what a few Indian software services companies have been saying in the past few weeks since the reality of the US slowdown hit them is: ``We are exploring opportunities in Africa.'' It's probably necessity that is driving them to discover greener pastures.

But the question that could be asked here is, ``Are these pastures green enough?'' The question is relevant here because of two factors that Indian vendors generally attribute their interest in a region to: adequate dollar funds with buyers of IT and a fair degree of commitment from the top management among buyers.

Here, it is relevant to exhume the same excuse that some Indian software vendors used to give when asked why they focussed on US markets and not in India. The reasons were, ``Our margins for a sale in India are so low that selling project software here does not make sense. Further, the decision-making takes so long here and the push for implementation hardly comes from the top in a company. Hence the difficulty in completing projects on time. Which makes it difficult to work here.''

So, don't these excuses hold for another developing nation/continent such as Africa? eWorld spoke to a few in the industry. Some answer the above question with a ``No. They don't'' and others say, ``They don't hold for the entire region.'' Read on to make your own judgement. For the sake of convenience, Middle East is clubbed with Africa to make up the MEA region, much the like.

Is there business?

Pentasoft recently bagged an order worth $1 million in Sudan from a committee -- Electronic Banking Services -- that oversees IT implementation for several banks in its country. Pentasoft feels that there is at least $20 million worth of business to be captured immediately. It is now exploring possibilities in Kenya, Uganda, Egypt and Morocco.

According to D. Kannan, CEO of Pentasoft, ``Applications such as banking, insurance, and natural resources mapping using GIS, are good examples of potential areas in the African markets. Training on IT Systems is also a very big opportunity in Africa.'' In other words, in industries where there is Government investment, companies have huge cash reserves or where application of technology can result in multifold returns, there is scope for IT business.

He adds, ``Pentasoft has been operating in the African region for the last four years, and has implemented several projects in the financial services sector. We have made deep inroads in some countries in the insurance solutions segment. We are also making inroads in the banking sector.'' The company is also looking at Mauritius as a Franco-African hub for software development services in the region. The company expects revenues of $30-35 million in the next two years in the African continent.

Products rather than projects

Interestingly, vendors seem keen on selling products rather than project software. Says B.S. Kamath, Chairman and Managing Director, Laser Software, which has been selling banking software products for the last 15 years in India, ``Product sales in Africa will be more than services sale. There are budgets available in infrastructure development (with external aid) and also in banking.'' Agrees Rajiv Malhotra, Senior Vice-President, Polaris Software Labs. He says, ``Products is the best way to go in addressing the MEA market.''

According to Kannan, ``We believe that the African market is best addressed through software products and kernels, rather than be-spoke development. This has been reinforced with our experience in the insurance sector. Also, in the Indian context, it is smaller and modular products that get results, rather than high-value complex software products.''

An India-like atmosphere - an opportunity?

Kamath agrees that there is a possibility that the obstacles a vendor faces in India could crop up in areas such as the Middle East and Africa. According to him, ``In the Middle East, we do expect that users will not have clarity in requirements and a focus on quality. Hence the onus will be on the service provider to appraise customers and re-engineer operations so that he may benefit from technology.''

Which means, as long as funds are available for expenditure, this is an opportunity for consulting as well as product sales. As a result, Kamath suggests, ``In such geographic regions, it is better to start small and then scale up.'' The company is close to landing a couple of orders in the Middle East and is hoping to start efforts in Africa by this November. Kamath's estimates for his company are: For the current year, revenues from Middle East should total $2 million while Africa should give us half of that.

The dangers of the Middle East

It looks there is relatively more money to be made in the Middle East than in the continent geographically below it. But the region is not without its own pitfalls. Says G.S. Krishnamurthy, who was formerly with Hexaware -- an Aptech arm -- and now running his own outfit, Karma Infotech, ``We are developing a knowledge portal for a large petroleum company in Saudi Arabia. However, the issues of doing business in the Middle East, namely, low rate structure, three to five months of holidays due to summer and religious festivals and religious bias, the extent of business done is always limited and highly risk-prone.'' As to possibilities of business, he adds, ``While we believe that we can get $3-5 million worth of business from the Middle East, the strains are quite heavy and therefore, we approach the Middle East with cautious optimism.''

The flip side

Here's another side of the argument that supports vendors focussing on India before finding alternatives for the US. Says S. Premkumar, Director, TVS-Fugen, which is into providing call centre technology in India and is highly India-centric in its endeavours, ``The Indian CIO is in no way inferior to his counterparts elsewhere. He goes through a greater justification process and has to show value of investments and also needs to make each investment work much longer. The fear of the unknown thus shifts to a lower-cost-greater-comfort syndrome, which can be overcome if the value of investment is clearly defined by the IT service provider. There is also a widespread perception that larger companies may not deploy their best talent on domestic projects, hence the value should be lower. The vendors thus have to demonstrate the fallacy of this statement very clearly to elicit value.'' In other words, there is value in software implementation. It is a matter of putting mind over matter, he seems to say.

Key countries

An industry observer, who was formerly with an IT trade magazine and who now performs the function of a VC for a South-based computer peripherals company, agrees that Africa was certainly a dark continent till recently when our ``worthies'' decided it was an emerging marketplace. According to him, ``The key to Africa will be South Africa, which characteristically and by association is a booming market. Zimbabwe is another. Current political flux excluded, Zimbabwe is as hungry for IT as many of the Asian Tigers. With both these markets having very strong linkages to the US and European markets, it is only a matter of time before they catch our eye. Even today, scores of US companies focus on South Africa.''

He adds that countries such as South Africa, Zimbabwe and Kenya will lead the pack. ``North Africa may still lag but these three countries will race much faster than others due to stable polity, proximity to the US and European markets and the fact that there is still a lot of developmental aid that is coming the way of these countries from the West. My fear is that as usual, Indian companies will chase the Sun and land in these markets a lot later than the US and West European companies and thus will be left to accept the crumbs.''

IT penetration in ME is limited to MNC companies' projects, he says. ``The local community does not have much stake except to act as local minders -- patrons etc. Almost the entire business activity is controlled by the MNC companies and they are pretty well computerised. Much of the software development is sourced from the principal in the US or West Europe.''

Verticals

Despite all this, certain verticals seem to have done well in the MEA region, given all its constraints. One vertical that seems to have evoked interest from numerous Indian vendors is Financial Services (FS). Almost all serious respondents to eWorld's queries on their African and Middle East endeavours have had some or immense interest in the FS business: Pentasoft, Karma, Polaris and Ramco.

Business possibilities

Says Rajiv Malhotra, Senior Vice-President at Polaris, ``We sell our Bancware product in the African and Middle East regions. The product business is best suited for vendors in these regions. Since, in most cases, money is available (either through Government funds or through private investments) and users do not want to wait and then learn on the job. They would rather have it going right then. It also helps us since we command a certain premium for product offerings.''

As to the total business opportunities available, Malhotra says, ``A Gartner study says that the total MEA market should be around $1 billion for software services by December 2001 and should grow to $1.5 billion by 2004. Potentially, 15 per cent of Indian exports (of $8 billion this year) could be met by addressing this market. This will not necessarily happen. But there is potential. As to the FS sector, there are some 60 odd banks in Middle East and 250 banks in Africa. For our banking product, in the next 12-18 months, 30 per cent of revenues should come from Asia-Pacific, a similar per cent from India and about 40 per cent from MEA. The last should grow to 50 per cent in the next 18-30 months.''

Ramco Systems has two clients: UN Relief and Works Agency uses the financial and human resource components of Ramco's e.applications product in Gaza, Lebanon, Jordan, Syria and Israel; a petroleum company in Tanzania uses its oil solution. A spokesperson for Ramco says there are millions of dollars worth of business potentially available in Government projects which are funded by the World Bank, especially in areas such as finance, human resources, inventory and purchase, asset management and e-governance.

Valuable lessons learnt

In his endeavours in the Middle East, Krishnamurthy of Karma seems to have taken away a few lessons. He says, ``The most important lesson that we learnt is that we should have a professional and influential partner through whom we do business in the Middle East since it is a pre-requisite. Secondly, the recruitment strategy has to be focused and the collection drive has to be aggressive.''

Says an industry watcher who would rather see companies doing business in India rather than the Middle East, ``Operating in India surely will help in doing things right in the MEA kind of markets.'' This could be because buyers' mindsets are similar and requirements have something to do with cost consideration. He adds, ``Another significant HR perspective is the relative low preference as a possible migration destinations.''

The numbers

There are now about 38 countries in the region with 1,000 or more dial-up subscribers, 19 countries with more than 5,000 and 11 countries with more than 20,000 subscribers -- Algeria, Botswana, Egypt, Kenya, Mauritius, Morocco, Nigeria, South Africa, Tunisia, Tanzania and Zimbabwe. Other countries bubbling under the 20K subscriber mark which could have as many effective users due to the extensive use of wireless links and university networks include: Cote d'Ivoire, Ghana, Madagascar, Mozambique, Namibia, Senegal, Uganda and Zambia. Most African capitals now have more than one ISP and in early 2001 there were about 575 public ISPs across the region (excluding SA, where the market has consolidated into three major players with 90 per cent of the market and 75 small players with the remainder). Fourteen countries had five or more ISPs, while seven countries had 10 or more active ISPs: Egypt, Kenya, Morocco, Nigeria, South Africa, Tanzania and Togo, and 20 countries had only one ISP. Although Ethiopia and Mauritius are the only countries where a monopoly ISP is still national policy (i.e. where private companies are barred from reselling Internet services), there are other countries in which this practice still continues, predominantly in the Sahel sub-region where markets are small.

Source: Pentasoft Technologies

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