Business Process Outsourcing to South Africa

•Area 1,219, 090 km2

•Population 47,9m (2006 estimates)

•Currency R1 = 100 cents

•Time GMT + 2 hrs

•Head of the State: President Thabo M Mbeki

•11 Official languages with English the business language

•Total GDP: 2007 US$ 259 864 m

•GDP 2007 per capita: US$ 13 564 at PPP

•Real GDP Growth: 5,0 (2007)

•Inflation : 6.4% (annual 2007 average)

•Corporate Tax rate : 28%

•Exports: Tourism, minerals, diamonds, metals and

metal products, food products & automotive components.

•Main trading partners: Germany, USA, China, Japan &

the UK.

South Africa at a glanceSouth Africa at a glance

Achieving sustained and balanced growthAchieving sustained and balanced growth

Further, ‘[c]onsistently prudent macroeconomic policies have succeeded in reducing the fiscal deficit, stabilising debt levels, and lowering inflation and interest rates’; and the country ‘stands out among its peers due to its democratic and transparent institutions and entrenched political stability…’

Economic advantages which create a positive environment

Cheap electricity

Abundant mineral & natural

resources

A tested and reliable legal

system

A relatively large labour force

Established industrial &

financial infrastructure

Standard and Poor’s, August 2005

4

EXPANDED GOVERNMENT ASSISTANCE AND SUPPORT

Source: Media, team analysis

“… we will be responding to the skills we require for … the priority sectors - tourism and business process outsourcing in particular”

Phumzile Mlambo-Ngcuka, Deputy President of South Africa and Chair of the Accelerated and Shared Growth Initiative for South Africa

SOUTH AFRICA’S GOVERNMENT HAS PRIORITISED THE BPO SECTORSOUTH AFRICA’S GOVERNMENT HAS PRIORITISED THE BPO SECTOR

South Africa’s Value Proposition for BPO&O

BPO2SAValue Offshoring

GDP sources (2007E)

Total Services 70%

Tourism Services 8%

Financial Services 20%

Industry/manufacturing

25%

Agriculture 2.5%

Age Profile Stats (2006)***

Employed 16-65 yrs 42%

15-24 years old 21%

25-49 years old 27%

50+ years old 14%

Interesting Facts

•South Africa is 6 hours closer to the USA than is the Philippines

•South Africa has roughly 80,000 call centre seats.

•English is the language of business and education. There are ~9 million citizens that speak English as their first language.

Background: South Africa’s Window of Opportunity

• The South African Government has demonstrated its strong commitment to BPO in South Africa.

• The government has set aside a dedicated fund over the next 5 years ( 2007 – 2011) for investors in the country’s BPO sector.

• The fund has been created under the Government Assistance and Support (GAS) programme launched in March 2007.

• The objective of the incentives is to create employment opportunities.

Our Strategy for the BPO&O Sector

• Strategic focus areas identified:

– Government Assistance and Support (GAS)– Talent development – Marketing– Industry mobilisation– BPO&O standards

• Additional work streams have been identified :

– Telecommunications pricing packages for the BPO&O sector– BPO 2nd economy strategy – BPO infrastructure or BPO Parks or Special Economic Zones

8

SOUTH AFRICA HAS A SIZEABLE, EDUCATED AND RAPIDLY GROWING WORKFORCE…

Source:Statistics SA Labour Force Survey, 2005, Statistics SA Census 2001, Department of Education, team analysis

Unemployed

100% = 16m

The pool of available, educated labour is growing rapidly and is readily available

South Africa has a readily available labour workforce of

~4m

25%

75%

2

6

Graduates

School leavers

Economically active population%, 2005

Current educated workforcemillion

“The labour market is extremely growth enabling”Bev Cunningham, HR Manager,

CSC

9

SA’s SCHOOL SYSTEM ALSO DELIVERS OVER 300,000 SCHOOL LEAVERS TO THE LABOUR FORCE EACH YEAR

277

306

322

331

2001 2002 2003 2004

Source:Labour Force Survey, team analysis

School leavers each year000

Gauteng KwaZulu Natal

Western Cape Eastern Cape

Other Provinces(NW, NC, MP, FS, LP)

National school leavers annually000

~50% of school leavers proceed to tertiary institutions or are formally employed, resulting in over 150 000 entering the labour market each year

10

….SUPPLIED WITH OVER 100,000 GRADUATES EACH YEAR FROM A WORLD CLASS EDUCATION SYSTEM

*Includes mathematical sciences, computer science and engineering

Source: Department of Education, Statistics South Africa, team analysis

9399

107102

Directly relevant to BPOAnnual graduates

000

The University of Cape Town• Exchange programmes with 16 leading US and UK

universities• 18 scientists rated as 'world leaders' in their fields• 3 Nobel Prize winners

The University of Witwatersrand• Business School ranked 45th in Financial Times

Executive Education rankings• 87 Rhodes scholars• 4 Nobel Prize winners

Business and Commerce

Other*

71%

29%

Almost 40,000 students graduate each year from courses directly relevant to BPO

64 66 65 68

29 33 3739

2000 2001 2002 2003

11

An innovative government funded, employer led, learner focused, recruiter and trainer supported training programme has been developed

TRAINING PROGRAMS ARE BEING PUT IN PLACE TO ENSURE SCHOOL LEAVERS ARE SUITABLY QUALIFIED…

Government and industry’s talent development programme, aimed at training 30 000 learners, is being developed . . .

Talent development programme

Objective • Increase the pool of entry-level employable people by using a targeted customised skills training programme aimed at 30 000 young, unemployed South African’s

• Accelerate the development of homegrown supervisors and managers

• Ensure the ongoing capacity building of a globally competitive talent pool with the required skills at all levels of employment

Targets • Train 1 000 entry level learners in 2007 • Train an additional 29 000 learners for the

period 2007-2010.

Source:Team analysis

Employer

Recruiter Trainer

Learner

12

…AND GOVERNMENT HAS COMMITTED TO FURTHER IMPROVING THE DEPTH AND QUALITY OF SA’S TALENT POOL

Source: Team analysis

Overarching government objectives

• Develop and improve the skills of the broader South African workforce

• Reduce unemployment in the country through increased economic growth

• Empower previously disadvantaged South Africans, both economically and socially

• Encourage greater investments in training

• Create opportunities for the introduction of new advanced skills

• The Skills Development Act provides a framework for the development of South Africa’s skills base, including the creation of a National Skills Fund to provide for skills development initiatives

• The Skills Support Programme offers incentives with a value of up to $840 000 for a 1 000 seat centre over 5 yrs. The programme provides:– Training grants for eligible training costs– Learning development grants for developing customised training

programmes– Capital grants for installation of training capacity

• A wage incentive programme for learnerships, available for employers offering approved learnership programmes. Provides up to $430 000 over 5 yrs for a large centre

Initiatives in place

investors could take advantage of a range of support that is available to investors to

enable job creation and skills development

13

• The Protection of Personal Information Bill covering Data Privacy is close to being promulgated and is very similar to the EU Data Protection Directive

• The promulgation of information protection legislation in South Africa will necessarily result in amendments to other South African legislation, most notably the Promotion of Access to Information Act 2 of 2000, the Electronic Communications and Transactions Act 25 of 2002 and the National Credit Bill [B18-2005]. All these Acts contain interim provisions regarding information protection in South Africa

• The Intellectual Property Laws Amendment Act – aligns SA with the Agreement on Trade Related Aspects of Intellectual Property Rights ("TRIPS")

• Patents Act 1978. South Africa is a subscriber to the Patent Co-operation Treaty ("PCT") which facilitates simultaneous protection in a large number of countries

• Trade Marks Act 1993 - contains legislation similar to the new legislation in the United Kingdom and other European community countries

SA RECOGNISES DATA PRIVACY AND THE PROTECTION OF INTELLECTUAL PROPERTY…

• Copyright Act 1978 - legislative amendments have extended the scope of copyright in computer programmes. International protection follows from South Africa's membership of the Berne Convention

• Designs Act 1993 - designs relating to integrated circuits can now be registered

• Counterfeit Goods Act 1997 - enables proprietors of certain intellectual property to act against counterfeiting of their products. The Act provides streamlined and effective enforcement measures

• Intellectual property law is also affected by other legislation including:

• Merchandise Mark Act • Harmful Business Practices Act• Competition Act• Business Names Act• Standards Act • Marketing Act • Companies Act • The Intellectual Property Laws Rationalisation• Trade Practices Act

Sources: Deneys Reitz Attorneys, SA Law Commission

14

…AND A NUMBER OF LEGAL INSTRUMENTS REGULATE FINANCIAL SERVICES IN SOUTH AFRICA

• The Financial Services Board (FSB) oversees the regulation of financial markets and institutions, including insurers, fund managers and broking operations but excluding banks, which fall under the South African Reserve Bank. The FSB is the equivalent of the FSA in the UK

• The Financial Intelligence Centres Act (FICA) – counteracts money laundering

• Compliance with the Financial Advisory and Intermediary Services (FAIS) Act is required for all providers of financial services. Agents must also be registered, trained and certified

• As general best practise, banks are compliant with BASEL II

• Banks are regulated by The Banks Act, which is primarily based on similar legislation in the United Kingdom, Australia and Canada. The Banking Council looks after consumer issues and there is an Ombudsman. The National Payment System Act of 1998 was introduced to bring the South African financial settlement system in line with international practice on settlement systems and systematic risk management procedures

Source: Team analysis

FSB

FICAFAIS

BANKS

15

SA HAS RECENTLY LAUNCHED BPO SPECIFIC INCENTIVES…

National Incentive Comments Value

Investment Incentive Grant The incentives are offered to local and foreign investors establishing projects that aim primarily to serve offshore clients. The objective of the incentives is to attract BPO investment that creates employment opportunities

From$5300

[R37,000]To

$8500[R60,000] per seat

Dependent on the level of qualifying investment expenditure and employment creation.

Minimum jobs = 200 and 90% of revenue must be derived offshore

Training and Skills Support Grant

The Grant supports company-specific training requirements including:

• in-house trainer/ facilitator/assessor development/ skills

• costs for development of learning materials/ programmes

• costs for trainer secondment into South Africa

• costs of purchasing and installing training equipment and facilities

Up to $1700

[R12 000] per agent

Grant per new employee trained, calculated as 50% of qualifying training expenditure

Source: The Department of Trade and Industry South Africa March 15, 2007

Note: The BPO Investment Incentives are effective from 06 December 2006 up to 31 March 2011

SA Rand (R) : US dollar exchange rate ~ 7 : 1SA Rand (R) : US dollar exchange rate ~ 7 : 1

Employment Created Qualifying Investment Costs Per Seat

Grant Per Seat

200 – 499 At least $10 500 [R74,000] $5300 [R37,000 ]– $6400 [R44,600]

500 < Greater than $12 700 [R89,200] $6400 [R44,601] – $8500 [R60,000]

200 < Less than$10 500 [ R74,000] Between $5300 [R37,000] and $7400 [R52,300]; or 50% of agents salary costs for 2yrs, whichever is lesser

… DETAILS OF THE INVESTMENT INCENTIVE GRANT

Source: The Department of Trade and Industry South Africa March 15, 2007

• A project employing between 200 – 499 agents with Qualifying Investment Expenditure of more than R74,000 per seat is eligible for a grant between R37,000 and R44, 600 per seat.

• A project employing 500 or more agents with Qualifying Investment Expenditure greater than R89,200 per seat is eligible for a grant between R44,601 and R60,000 per seat.

• Should a project have qualifying investment expenditure of less than R74,000 per seat, but 200 or more agents, it will be eligible for a grant between R37,000 and R52,500 per seat. The approved grant may not exceed 50% of the salary costs of agents for the first 2 years of the project.

• A project employing between 200 – 499 agents with Qualifying Investment Expenditure of more than R74,000 per seat is eligible for a grant between R37,000 and R44, 600 per seat.

• A project employing 500 or more agents with Qualifying Investment Expenditure greater than R89,200 per seat is eligible for a grant between R44,601 and R60,000 per seat.

• Should a project have qualifying investment expenditure of less than R74,000 per seat, but 200 or more agents, it will be eligible for a grant between R37,000 and R52,500 per seat. The approved grant may not exceed 50% of the salary costs of agents for the first 2 years of the project.

SA Rand (R) : US dollar exchange rate ~ 7 : 1SA Rand (R) : US dollar exchange rate ~ 7 : 1

DISBURSEMENT OF INVESTMENT GRANT

The approved grant will be disbursed in 4 stages, over 3 financial years of the company, subject to performance criteria:

Claims Period Percentage

1 6 months 25%

2 Year 1 25%

3 Year 2 25%

4 Year 3 25%

18

IN ADDITION INVESTORS CAN ACCESS OTHER INCENTIVES

Source: The Department of Trade and Industry

General Incentives Comments Value

Technology and Human Resource for Industry Programme (THRIP)

The aim is to build R & D capacity $1 for every $2 put in

Matching grant to support costs incurred in R & D that enhances skills

Urban Renewal Programme The aim is to encourage the development of businesses in urban renewal areas

Accelerated depreciation allowance on the capital value of buildings and improvements in Urban Development zones

National Learnership Programme The aim is to develop a pool of nationally accredited agents, supervisors and managers

$8500[R60,000]

Tax deduction per unemployed person at the start of and on certification of a registered Learnership (split into 2 amounts, before and after)

$5700[R40,000]

Tax deduction per employed person at the start of and on certification of a registered Learnership (split into 2 amounts, before and after)

Location in Industrial Development Zones (IDZ)

There are 3 IDZ’s in South Africa Various • Grant to cover 50% of the cost of developing innovative products and processes

• Exemption from Value Added Tax (VAT) on imported goods and a rebate on duty on imported goods

Regional Programmes Each region offers individual investors options; typically reduced facility costs

Various • In the Western Cape: 100% rates rebate, free land and buildings, subject to availability

• Gauteng: Highly reduced rental space

SA Rand (R) : US Dollar exchange rate ~ 7 : 1SA Rand (R) : US Dollar exchange rate ~ 7 : 1

19

THE DEPARTMENT OF TRADE AND INDUSTRY (THE DTI) IS WILLING TO ASSIST INVESTORS IN SETTING UP A BPO CENTRE IN SA

Source:Team analysis

Government is willing to facilitate…

• Fulfilment of regulatory requirements– Information on all regulatory requirements– Progress tracking on different applications

• Access to Incentives programmes– Information on which incentives are

available– Assistance in applications for incentive

programmes– Progress tracking and feedback on

incentives applications

• Acquisition of work permits– Information on work permit requirements– Assistance in applications for work permits– Progress tracking and feedback work

permit on applications

• Required information relating to – National data, e.g., telecoms, connectivity,

transport– SA BPO landscape– More detailed regional information e.g.

average salaries, rental costs, amenities etc.

• Assistance for investors in setting up site visits with– Vendors – HR agencies– BPO centres

• Assistance in identifying a location for a BPO centre– Identify available space– Consider required amenities

Government Support Offered to

investors

• Support in planning further investments/ramp up of existing investment

FOR FURTHER INFORMATION CONTACT:

Dr Ray Ngcobo, Chief Director: Strategic Competitiveness, Enterprise and Industry Development Division, the dti

Tel: +27 12 394 1372 . Mobile: +27 82 783 5888 . E-mail: raymondn@thedti.gov.za

Mr Mfanu Mfayela, Chief Executive, BPeSA

Tel: +27 861 722 2266 . Mobile: +27 84 722 2266 . E-mail: mfanu@bpesa.org.za

THE INDUSTRY IS SUPPORTED BY A NATIONAL PARTNERSHIPOF GOVERNMENT AND THE PRIVATE SECTOR

Source: SSF Team Analysis

Thank You !!!Thank You !!!

BPO2SAValue Offshoring