High crime rates have led to innovative local solutions, but South Africa is yet to be considered a mature market.
Health care will be a main growth driver in the next three to seven years although funding is lacking, said Frost & Sullivan Industry Analyst Ariel Avitan, and South Africa might see stronger growth than most African countries. Additionally, financial institutions in South Africa are coming off a high base, as the sector has already installed sophisticated security systems to guard banks and ATMs. The financial sector is an important market, but it is not a growing market: Banks are reducing number of branches and driving customers toward the use of electronic banking and mobile banking. "What is changing is the location of ATMs due to bombings," said Smith. "Banks are moving their ATMs into retail stores and out of forecourts, where they were easily accessible to criminals. This means that banks are changing the way they invest in security systems, but it doesn't mean increased spending."
Industry Structure
While major international brands are imported, locally manufactured products also have a significant share. Local players are also actively developing security solutions for local use and international export. South African companies also have a strong ability to adapt international solutions for local use.
South African systems integrators do not have a national footprint. This means that the convergence of technology that introduced the IT sector into the electronic sector is a threat to major systems integrators because at some point big IT systems integrators will start taking their market share. Margins for IT/IP-based solutions are better than those for traditional security solutions, further endangering the business of traditional integrators.
A third source of risk is the growing change in who makes the purchasing decision. Security solutions used to be sold to security managers. Now there is a growing trend for security solutions to be sold to the IT department, as the technologies increasingly converge. Some vendors are starting to use the IT channel instead for visibility as well as integration.
Although network video is growing four or five times faster than analog CCTV, the latter continues to grow. Casino operators, though, have learned to appreciate the business benefits that IP surveillance systems provide, said John Loftus, Managing Director of Norbain, IndigoVision's partner in Africa. "Many casinos are now finding that their existing analog systems cannot cope with the demands of the complex surveillance environment in modern casino operations. Long-term storage and fast retrieval of video from a VCR-based system is a big problem," said Loftus.
Characterized by Innovation
South Africa has developed a number of world-class products. Crime is a strong driver. Despite this sophistication, the industry is still immature, with local players wary about providing data that would enable researchers to adequately define the size and scope of the sector, said Smith. "There is a high level of paranoia and market players don't want to divulge information about their revenues to anyone, including researchers."
A DTI document estimated two years ago that the sector accounted for US$3.9 billion in revenues. This figure is said to have climbed very high as the security sector has responded to demand to provide security solutions for government projects, to the need for crime prevention, and to growing consumer spend across board. "Typically, when it comes to protecting people, users will spend because it is critical to their business. However, when it comes to securing profits and property, security is like insurance," said Smith, noting that while manned security remains the most significant component, companies are now introducing electronic divisions to replace a portion of their guarding services.
The acquisition of 50 percent of Securex, South Africa's security exhibition, by the CMP group is set to further drive international interest in the South African electronic security sector, said Smith. Following the acquisition, the company will introduce IFSEC South Africa in 2009, propelling South African security companies onto the world stage.
Initial interest in the South African electronic sector peaked in early 2000. "There was a lot of euphoria by international companies around the opportunities that the South African market can provide. But the lack of understanding of the channel structure and the entrenched old-boy's network that doesn't allow for easy entry by newcomers made it extremely difficult for these companies to make inroads," Smith continued. International companies underestimated what it takes to penetrate the market.
Another factor that is expected to drive South Africa's international play is the growth of the local manufacturing industry. South African companies are strong players in the design and manufacture of electronic security products. A significant portion of products is locally manufactured. More than 50 percent of manufacturers are involved in access control equipment. Some 39.4 percent are in the manufacturing of perimeter security, while 36.4 percent manufacture alarms, intrusion detectors and control panels. Some 33.3 percent manufacture video surveillance systems, and 24.2 percent make fire protection equipment while 21.2 percent develop vehicle security systems.
