Amid the gloom around the local currency, the international consulting firm, Deloitte, believes a weakening Rand spells good news for South Africa’s outsourcing industry.
Officials argued the currency’s continued decline and grim recovery outlook in the short-to-medium-term could help the local outsourcing industry establish itself as a cost-effective destination for outsourcing.
Sandile Gwala, Deloitte Managing Partner, Business-Process-as-a-Service (BPaaS), said the depreciating Rand had benefitted Business Process Outsourcing (BPO) among other industries.
“The weakening of the Rand has positioned South Africa as a cost-competitive outsourcing destination for companies based outside of the US and Europe. This is boosted by the country enjoying time zone and cultural similarities with these geographies,” he said.
BPO refers to relocating business processes that a company usually performs in-house to a third-party service provider, such as a customer care or call centre, to carry out on behalf of the company.
Outsourcing becomes offshoring when the third-party service provider is located overseas.
The BPO industry’s focus sectors include financial services, insurance and telecommunications, with outsourced processes including after-sales services, data capture and conversion, accounting, benefits administration, human resource functions, and website design and development.
Gwala observed a strong local currency impacted negatively on tourism, mining and made local hiring costly thus forcing companies to outsource to a location that had a steady lower currency value.
He said South Africa had a large number of law graduates, much higher than in India, Ireland and Philippines, which is crucial for the evolution of Legal Process Outsourcing (LPO).
“Outsourcing the legal processes to low-cost countries is the new normal. LPO to South Africa is rising as a result of similarities in the legal framework with many of the European countries including the UK,” said Gwala.
“The South African outsourcing industry needs to harness the opportunity presented by the weak Rand regime to establish itself as a cost-effective destination and raise its service contribution to the global outsourcing industry.”
Gwala added that the Rand’s decline against the United States Dollar had been exacerbated by China’s flexible foreign policy, low commodity prices and diminished investor confidence and a monetary policy that has not provided much support to the weakening Rand.
“The Deutsche Bank estimates the Rand will depreciate even further, reaching a low of R17,50 to the USD in 2016 and R18 to the USD in 2017, leading to inflationary pressure, which is expected to reach 8 percent year on year in 2016.”
source: CAJ News Africa