Why outsourcing could be Africa’s next big opportunity

Reuters reports that intense competition in India’s business process outsourcing (BPO) industry has forced technology firm Spanco Ltd to expand to Africa where it expects to earn nearly half of its profits within two years.

Pravin Kumar, chief executive officer of Spanco BPO Services, said his company sees Africa as a solid opportunity for the firm due to its proximity and almost similar time difference to the firm’s major source markets – Europe and the United States – compared with India.

“We see a turnover of about US$100 million purely from the BPO business by 2013 from Africa. This year we will do about $40 million,” said Kumar. “In two years’ time at least 40% of our profits will come from here (Africa) purely in the BPO business.”

Spanco will launch operations in six countries including Kenya, Burkina Faso, Tanzania, Chad, Niger and Nigeria, riding on a contract the firm won from India’s Bharti Airtel to manage the mobile provider’s contact centres.

The BPO industry is worth an estimated $30 billion in India but competition is intensifying. “The BPO industry is completely saturated in India . . . the benefit of expanding in India is not as much as that of Africa,” said Kumar. Spanco sees a substantial amount of its profits coming from Africa driven by the untapped potential in the continent’s BPO industry.

Kumar said by August this year 3,000 people will be working in its African operations. The number is expected to go up to 50,000 by 2013 and Spanco plans to make several acquisitions in the course of its expansion drive.

Ghana has done particularly well in terms of positioning itself as an attractive BPO destination. A report, titled “The 2009 AT Kearney Global Services Location Index,” which ranked countries for their ability to handle BPO, using a weighted combination of scores on 43 measurements grouped under three main criteria: financial attractiveness; people skills and availability; and business environment, found that while India led the rankings globally, Ghana had the top overall ranking in sub-Saharan Africa.

“Ghana scored the highest (followed closely by India) out of the 50 countries ranked on financial attractiveness, which measures compensation cost, infrastructure cost, tax and regulatory cost. Ghana (3.26) scored considerably higher than South Africa (2.28).

According to the Kearney report, Mauritius also ranked favourably at 25th overall, thanks to strong people skills and a favorable business environment.

Although Ghana ranked high in the Kearney survey for BPO desirability, South Africa remained the largest offshore destination in Africa by far, operating a successful contact-centre cluster in Cape Town along with several research and development operations around its aerospace hub in Pretoria.

The above once again highlights that there is certainly more to Africa’s potential than commodities.

Article written by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.