If the past is any indication, South Africa’s economy should pick up strongly later this year as early signs of spending on IT by small and medium enterprises, which is happening now, typically precedes corporate South Africa opening its purse strings.
That’s the view of Tim Humphreys-Davies, CEO of Pinnacle, the large technology distribution company in the JSE-listed Alviva Holdings stable.
Humphreys-Davies, who was speaking to TechCentral in a wide-ranging podcast interview, said 2017 was a tough year for distribution in South Africa, but that since the end of last year — and particularly into the first quarter of 2018 — there are signs of spring in the sector, and this should flow through soon into the broader economy.
“In 2017, there’s no doubt about it: you saw a contraction of public-sector spend, corporate and SME spend, and retail. July, August and September were very, very challenging for all distribution,” he said. “You have visibility of vendor numbers, and you could see a big contraction (in 2017).”
However, since October last year, the retail sector has started to recover, with improved spending leading up to Christmas. “And it happened quite quickly,” Humphreys-Davies said. “It was a prelude to the ANC elective conference, that something positive was going to come out of that. The rand was strengthening, and the economy was recovering, so we saw early green-shoots recovery from retail.”
In the first quarter of 2018, the recovery has extended to the SME sector, he said. “In certain sectors — and let’s be clear, it’s only in certain sectors and we are not shooting the lights out — there are more than green shoots.
“We have measurement dashboards — we can track calls, e-mails, (the sales) pipeline, number of quotes — all those activity measurements point to a larger volume of business and greater ‘busy-ness’. You can see that general recovery.”
Distribution tends to recover more quickly than any other sector, as happened after the 2008 recession following the global financial crisis.
“People start spending money on IT in the corporate or SME space when they are employing people,” Humphreys-Davies said. “The early indicator of an economic recovery is your SME sector. It’s the heartbeat of the South African economy, and Pinnacle has always addressed that very strongly… You can see the activity ticking up… We had an incredibly strong February and March in our SME sector. Again, I’m not saying we shot the lights out — our government spend was poor still, which was to be expected, retail was better, corporate not so much. Corporates are still sitting on a pile of cash.”
But there is more confidence emerging, and a willingness to spend, he said. “I think you will start to see much better economic activity in the latter part of the second quarter, in May and June.”
There are typically two or three quarters between a pick-up in spending among SMEs and increased spending by the corporate sector, he said.
This article was originally published on TechCentral here.