African ICT market analyst BMI-TechKnowledge released its latest services report that shows a year-on-year growth of 5.3 percent in South Africa"s IT services market, which reached R18.4 million (US$2.7 million) in 2004 and accounted for 40.9 percent of the total IT expenditure in SA.

Market value is forecast to reach R27.5 million by 2009. This reflects a compound annual growth rate (CAGR) of 8.4 percent between 2004 and 2009. BMI-T expects to see market growth for 2006 and 2007 in the region of 7.8 percent and 8.1 percent, respectively.

Natalie Bryden, senior analyst at BMI-T, says: "The IT services outsourcing (ISO), together with deploy and support foundation markets, will continue to generate the largest amount of revenue over the forecast period, while the software as a service (SaaS) market will remain the fastest growing sector of the services market."

The key issues affecting this sector include the following:

-- In 2004, most of the services spending growth came from cost-cutting initiatives; however, in 2005, more growth is expected from more optimistic initiatives around how to increase revenues.

-- Consolidation continues in the IT industry. Mergers and acquisitions dotted the landscape in 2004, with companies such as EOH and KPMG merging and CS Holdings being bought out by Bytes Technology Group. This trend will continue in 2005.

-- Vendors have had to consolidate and focus on internal issues over the past few years. Mid-tier players will be under the most competitive threat from their much larger competitors, and need to consider acquisitions of smaller firms or mergers with similar rivals in order to remain competitive. An increased rate of consolidation may reduce overall market growth, as remaining vendors rationalize and further consolidate their offerings.

-- There is a shift to shorter, smaller, and best-of-breed deals. The number of megadeals, as well as the average size of such arrangements, has shrunk in the past couple of years. In 2005, for the purposes of risk management and spending control, enterprise decision makers will continue to "chunk" projects into smaller pieces, with defined outcomes that tie directly into appreciable results.