How to kickstart the economy

Pierre Spies is well known in the local channel, having spent over three decades working in it. He’s run Tarsus and Axiz, before moving upstairs to become CEO of the parent group Alviva, to which both distributors now belong, alongside Pinnacle, Datacentrix and a host of other ICT businesses.

The Margin spoke to him in early October to get his take on what the next few months hold for the South African economy and Alviva.

Given that the past 18 months have been anything but normal, it’s important to look back before we can look ahead. Spies, the ‘eternal optimist who’s also a realist’, admits the period of the pandemic has been one of mixed fortunes. On the positive side, technology has proven its effectiveness in corporate enterprises, with an uptick in demand that he expects to continue for the foreseeable future. However, global supply chains, including the current chip shortage, have muddied that opportunity.

Supplies of tier-one brands – HP, Dell and Lenovo – have been sporadic, with peaks and troughs, then droughts, for months. “We have six to eight months’ worth of stock on order that hasn't been supplied yet. However, certain Chinese brands, such as Acer, Asus or Huawei, are readily available.”

But corporates still want tier-one brands and are prepared to wait, he says.

Other areas where the group has seen an increase in demand during the pandemic have been networking and PC accessories. “They've been absolutely flying out of the door,” he says.

So where does he expect the market to pick up as we, hopefully, start to move beyond the pandemic?

“The enterprise space, software and cybersecurity will regain traction and I think for the next few years, there will be big growth in those sectors of our business. We can see activity levels are picking up there, the corporates are moving budgets back into the fold of the datacentres.”

He’s also positive about the prospects of cloud; he says Alviva is currently experiencing quarterly growth between 40% and 70%, depending on the product set.

“In distribution, we aggregate our services so we can throw in whatever the customer wants. We can put in VMware, IBM, Oracle, Red Hat, HP, Dell, and Microsoft and the client gets one invoice. We supply the platform with a white label front-end, the reseller owns that and sells to their end-customer. The reseller does the introduction and all the billing and everything is automated for him.”

What does this optimist-cum-realist think needs to happen to get the South African economy up and running again?

“The biggest concern we have is that Covid is being used as an excuse, and the biggest excuse we see is from government.

“Government is one of the worst payers on our books. We don't supply them directly, other than through our systems integrators, it’s mainly through resellers. But SME resellers don't have the capital means to pay us, as they wait on their client, so we become their bank, offering bridging finance. From a financial perspective, we’re the single largest bank into the IT industry in South Africa. If you look at our debtor's book, it runs to R3.5 to R4 billion out on loan. A lot of companies that do business with government are really struggling to get their money because the excuse is Covid or they (government employees) are working from home.

"Government needs to take action; it’s not forcing people to go back to the offices. The economy is in dire straits and government's not pushing the issue. It contributes in excess of 30% of the country’s GDP, so that’s 30-odd percent of the country that’s reliant on government spend. If it doesn't get back to the office, start spending and get things working properly, the infrastructure will end up collapsing like it has at Eskom. With the infrastructure starting to take strain, the municipalities are starting to take strain, and look at the recent riots; that's also a big concern, that we'll see more riots.”

Spies also calls for more engagement and certainty over regulation from government. He says the Extended Producer Responsibility regulations from the Department of Forestry, Fisheries and the Environment has caught IT distributors unawares. The new regulations introduce a levy on the import of goods, including computer equipment, for the safe and responsible disposable when it reaches end of life. While he agrees with the aim of the regulation, he’s dismayed that there was no industry consultation about it before introduction.

“One of my competitors phoned me and asked if I knew about it. When you take into account that between our two organisations, we account for 70% of the IT equipment being imported into the country, we weren't even consulted in the process.”

The regulations came into effect in early November and distributors have to be registered with the department’s South African Waste Information Centre and use one of three companies currently registered on its portal.

“You have to pay per kilogramme and they need to take responsibility for disposing of the equipment. I agree with the principle 100%, but give us an opportunity to engage so maybe we can register ourselves and (do) what we need to do. We believe in sustainability, but I don't just want to go and pay money to someone and have no idea what's going to happen to it. If it’s just another tax we're paying, where's the money going?”

A recent IBM global study of 3 000 CEOs found that 50% had regulatory concerns, largely to do with the way governments enacted different levels of lockdowns, changed policies and the market environments in response to Covid. But Spies says at a local level, the way government is changing policies beyond Covid without consultation is concerning.

“Government needs to get its act together, get people back to the office, start spending money and get the economy and GDP going. From a corporate perspective, as soon as government starts spending, the more market activities and confidence grows, then corporates will start spending more.”

With the challenges being faced around sporadic supply of laptops, and an expected bubble of stock as clients place duplicate orders, then cancel with other suppliers once they've received their orders, how do distributors normally ensure they don’t get stuck with too much stock?

Alviva’s Pierre Spies says: “You're always going to get stuck with some stock, less so on notebooks as you simply discount them, but if you bring in a large EMC, HPE or IBM storage solution, for example, and it's very specific to a customer who cancels, you're not going to sell that to anyone else by dropping the price. So you have to be very specific about what stock you carry. We've got algorithms that tell us what to stock and what not to.”

He says the sweet spot for the price of notebooks is between R3 000 and R15 000. “I don't think we ever get stuck with any of those; it might age into 60, 90 or 120 days, but you discount it and it's gone. Desktops are different, we do get stuck with those.”

The traditional box desktops or the more sleek all-in-ones?

“In the rest of the world, all-in-ones have taken off, but in South Africa, people simply don't like them and I don't know why. That's one product we've been burnt with over the years, so we're very specific now how we order them. You think all-in-ones will fly off the shelf, but they really don't; people still want the box desktops.”

With Covid, demand was for notebooks as employees transitioned from the office to work from home. Does this sound the death knell for the desktop?

“I think it (demand for desktops) will come back to the extent where people now realise that giving all your staff notebooks is risky; you need other security protocols on your notebook in case it gets stolen or broken. Seven or eight years ago, there was a massive drive on notebooks, but companies realised it was too risky and sales of desktops picked up again, then they plateaued out. There’s still room for desktops, just not for now.”