Cost-cutting measures and restructuring taking place in state-owned enterprises are hitting the information technology industry, as these organisations apply strict cost controls to match their falling budgets.

State-owned enterprises spent R3.15bn on IT last year, accounting for 6,5% of SA's overall IT spending. That amount will drop as budgets are pared over the next two years, says Natalie Bryden, a senior analyst with the research house BMI-TechKnowledge.

IT services, at roughly R1.4bn, accounted for the bulk of spending, followed by hardware worth R975m and R722m of software.

The IT industry earns about 13% of its revenue from government itself, plus the 6,5% from the state-owned entities. So a total of 20% of income is government related, says Bryden. "That's huge, considering that the government is not at the forefront of technology adoption."

The Transnet group is the largest buyer of IT products and services among the state-owned enterprises. It accounted for 39% of total procurement last year. Those figures will fall in the coming years. "One reason why there will be a huge reduction in spending is because Transnet has to cut its budget from R1.3bn last year to R800m by 2008," said Bryden. "It is looking at consolidating and reviewing its entire IT infrastructure to get the best value for money, and renegotiating to get the best deals from its vendors," she said.

The Post Office also achieved big economies. The R274m it spent on IT last year for the entire group matched the amount it spent on the head office alone in the previous year, Bryden said.

The savings are good news for tax payers but bad news for the IT industry, as the buyers focus on cost cutting and consolidating separate systems in their IT infrastructure to achieve economies of scale. Bryden's research also found that organisations such as the Post Office, the SABC, and South African Airways are using newer technologies to generate revenue.

The SABC, for example, is making extensive use of cellphone technology to generate additional revenue from competitions. After a couple of lean years, Bryden expects the state-owned entities to begin spending much more on IT as government steps up its investment in transport networks.

Investment in residential housing, community services, water and electricity has also been prioritised. This should also increase the amount spent on IT.

"The government is expected to invest R372bn in infrastructure in terms of its Accelerated and Shared Growth Initiative for SA policy over the next three years.

Business Day