Building Africa's Outsourcing Industry - A Case Study

February 26, 2023

What's particularly exciting about remote work is that it's not constrained by the demand from the local market. The jobs can come from anywhere in the world.

But it leaves us with a big question: why are global employers looking to hire African talent? And how can African markets take advantage of the opportunity and capture more of these jobs for its citizens?

This episode is another case study, on what it looks like to develop the global business services industry in a country like South Africa.

3:50 - Understanding how the global business services sector works, with Genesis Analytics' Mark Schoeman. What compels global organizations to open a delivery center in a given market?

8:27 - The most important consideration is the development of a scalable skills pipeline.

12:03 -  The work largely becomes building the talent pipeline to service demand. We explore what that looks like with Harambee Youth Employment Accelerator's Sharmi Surianarain

This episode features:
  • Mark Schoeman
    Partner: Centre of Digital Excellence
    Genesis Analytics

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Mark Schoeman: What's exciting about digitally delivered work is that it's not constrained to the size of domestic demand in the economy.
Justin Norman: That's Mark Schoeman, a partner at the economic and development consulting firm Genesis Analytics. 
Mark Schoeman: Just to give you a sense of how early Africa is in this game and why this is such a compelling opportunity, the kind of big global market size of business outsourcing is usually valued at around $250 to 300 billion. And we think that Africa's currently capturing about 15 billion of that demand. Just in terms of the offshore demand, Africa's probably only capturing about 8 billion. That's about 3% of that global market share. 
Justin Norman: In this episode, we're going to talk about how African markets can increase their percentage of that market share. 
Mark Schoeman: There's a huge potential skills base that's untapped in African countries and there's a lot of indicators that show that the appetite to move to locations like Africa is starting to become quite apparent.
Justin Norman: In our last episode, we heard from the founders building platforms to connect African talent to remote work opportunities around the world. 
What's particularly exciting about these types of jobs is that they're not constrained by the demand from the local market and that they can come from anywhere in the world. 
But it left us with a big question: why are global employers looking to hire African talent? And how can African markets take advantage of the opportunity and capture more of these jobs for its citizens?
Most of this work falls under the umbrella of global business services, or what's more commonly known as business process outsourcing, or BPO. 
And in this episode, we'll explore another case study, on what it looks like to develop the global business services industry in a country like South Africa.
Justin Norman: Before we start, we'd like to thank MFS Africa for their sponsorship of this entire season of The Flip. 
In global business services, while impact isn't always the primary objective, the impact is implicit, from a jobs creation perspective. The same is true with MFS Africa and their impact from availing financial services to such a wide network of users across the continent. I spoke about that impact with Funmi Dele-Giwa, MFS Africa's general counsel and group company secretary who oversees governance across the company.
Funmi Dele-Giwa: The underlying principle by which the organization is set up is impact, looking at how we can change the face of payments and making it as easy to make a payment as it is to make a phone call. And with that in mind, we have built the largest digital payment network on the African continent, and we currently connect over 400 million mobile wallets on the continent, which is roughly 70% of the mobile wallets available on the continent.
The connections and the scale are amazing, but they're not what actually is the impact. The impact is what this offers to the user and, to the user, this is the access to financial services that they ordinarily may not be able to get from an ordinary bank. They have mobile wallets and with that, they're able to run their small microenterprises and businesses, they're able to take care of their families, they're able to make general household payments, send their children to school and re-contribute to their own economies.
So we think that we are not just building a network for the sake of building a network. We are actually building Africa.
**Justin Norman: **Welcome back to The Flip, I'm your host Justin Norman. 
To understand the opportunity for the global business services sector as a major job creator in African markets, we first need to understand how the sector works a bit better. Here's Mark Schoeman, who we heard from in the opener. 
Mark Schoeman: The big source markets where most of the demand is, is North America and Europe, and a huge part of this demand is being captured by probably 15 to 20 massive multinational BPO and IT outsourcing companies, who have a really good sales presence in these source markets, and who have delivery locations all over the world. So that's really your ticket to the game. Are these big international companies and investors going to seriously consider investing in an African market? 
Justin Norman: What does that consideration set look like? Perhaps the first, and most important, and the most challenging consideration, is reputational. 
Mark Schoeman: Generally speaking, organizations or individuals in the global north and the big source markets where most of the demand is, don't necessarily trust the credibility of delivery from an African market. And I think there's a lot of myths and stereotypes about how well-developed African markets are, what kind of tech talent is available, is there energy infrastructure. There's a big hurdle to jump over in terms of just reputationally convincing these organizations that delivery from an African market is credible.
Justin Norman: It is a bit of a chicken and an egg game. 
Mark Schoeman: The benefit of having one of those multinational companies set up in an African delivery market is that it starts to break some of these stereotypes. And having that track record and that credibility of having these big brands, either the BPO companies or some of the massive, American brands that organizations and consumers in America would understand and relate to, like Amazon, like Walmart, having delivery locations in South Africa when Kenya just helps so much in being able to break some of these stereotypes and establish the credibility of these African markets for quality service delivery.
Justin Norman: We're going to talk later in the season about the impact of Big Tech employers on local ecosystems. But one benefit of AWS in Cape Town, or Microsoft in Nairobi and Ghana, or Andela in Lagos, is that reputational benefit. 
Mark Schoeman: And once you've dealt with that reputational challenge, there's a number of fundamentals that need to be in place, which it's not going to distinguish you from your competitors or just need to be there. Things like political stability, energy infrastructure, good quality ICT coverage, and if all of those kind of things are checks, then typically what these international investors are looking for is a few things. 
Justin Norman: Talent is, of course, a primary consideration.
Mark Schoeman: They want to know that there's a scalable pipeline of talent that is able to convert raw talent into a work-ready workforce. And so things like the availability of English speaking talent is often one of the things that these investors look for but also are there initiatives and programs that are specifically designed to take somebody coming out of high school, put them through soft skills training, give them some technical training so that they can easily be absorbed into the workforce and hit the ground running. 
Justin Norman: Then the next category of considerations are more tactical. 
Mark Schoeman: The second thing that they often look for is that there's a strong government champion that's recognized the importance of this opportunity and is investing in it. That might be a ministry of ICT, that could be a department of trade and industry. And one of the signals that signals to potential investors that they're serious about supporting the sector is providing some kind of incentives to sweeten the deal and make it more cost convenient to set up a risky kind of pioneer of setting up in a new delivery location.
Justin Norman: Here's what that looks like in practice. 
Mark Schoeman: For example, in South Africa, the Department of Trade and Industry provides fiscal incentives to investors who are setting up in the BPO or digital outsourcing space, and they subsidize every new job created with some of the training costs. In Rwanda, that's currently being done by organizations like GIZ. They're also quite interested in understanding whether the industry itself is well organized and capacitated to solve some of the collective challenges that no one individual company can solve. Is there a strong industry association that's figuring out where the skills are going come from, building strong relationships with the government to advocate for better policies? 
Justin Norman: Now, all of that is table stakes - they're criteria that must be in place to be considered in the first place. Then these markets have to go out and win business. 
Mark Schoeman: And then a critical thing for capturing this opportunity, once you've got all of that in place, is marketing and investment promotion. Do you have boots on the ground in the source market who can go and tell the story of what the value proposition of delivery from this African market is? And that's where I think investment promotion agencies and economic development agencies have a strong role to play. But they have to work really closely with the private sector who really understands what the value proposition is, what the cost profile of operating is.
Justin Norman: Now, we're aware that African markets have some catching up to do, to the South Asian markets, in particular, who have had a significant head start. It's largely a scale question. 
Mark Schoeman: I think the scalable skills pipeline is probably the biggest constraint because if you look at markets like India and the Philippines, where the industry is so massive, setting up a two thousand or three thousand seater contact centers is not a difficult thing to do. And one of the reasons why is because the government has invested significantly in building up that digital skills and technical talent pipeline. So that's critical for African countries to replicate.
Justin Norman: But at the same time, a more skilled and saturated talent market creates a new set of supply-demand dynamics that may change the attractiveness of these markets from a global business services perspective. 
Mark Schoeman: As you get bigger and bigger the availability of the skill supply starts to become saturated. You've got different operators who are now competing for the same sets of skills and that competition starts to push salaries up. And that can then mean that it becomes a little bit harder to have your kind of cost arbitrage of salaries being a lot cheaper than in the source markets working out. 
Justin Norman: That's been the experience in major cities in India, for example. 
Mark Schoeman: What you've seen in India is that these BPO centers or delivery centers have expanded from the major tier one cities into regional tier two cities and even into rural areas, to go and look for that talent that hasn't been capitalized on yet, and where the salary is a little bit cheaper. 
Justin Norman: And where there are opportunities for smaller, regional cities, there are also opportunities for new countries and markets altogether. 
Mark Schoeman: If you zoom out, that opportunity then exists at a macro perspective across the globe. There's a huge potential skills base that's untapped in African countries that from a salary perspective is significantly cheaper, and so as countries like India and the Philippines have scaled and become a lot bigger, some of these global operators are now looking for where's the next frontier. Where's my next source of skills that I can tap into at a more cost-effective price? And there's a lot of indicators which kind of show that the appetite to move to locations like Africa is starting to become quite apparent.
Justin Norman: When we come back, we're going to dig into the talent question a bit further. But before that, here's another word from our sponsor MFS Africa.
Earlier in the show, we heard from Fumni Dele-Giwa on MFS Africa's Impact. It's something they measure, not just externally with their users, but internally within the organization as well.
Funmi Dele-Giwa: We also look at it internally. We also have key metrics against not just access and inclusion, but against diversity and how we are achieving that within our workforce. It's something that we're intentional about. We want to have a diverse workforce. We want to ensure that we provide an inclusive work environment for people that are working with us. So we have been specific and intentional in the recruitment process to ensure that we are a balanced organization. 
And in 2022, we were proud to say that we achieved 50-50 gender-equal workforce. And, we also are proud to say that we achieved pay parity as well, relatively, between male and female within the organization. And then in terms of diversity, we have hired across the world, and when it comes to cultures and languages spoken within the organization, they are numerous. So we are quite proud of the type of organization that we are.
Justin Norman: So where there is increased demand for new delivery markets, and African delivery markets, in particular, the work largely becomes building the talent pipeline to service demand, because as Mark said earlier… 
Mark Schoeman: I think the scalable skills pipeline is probably the biggest constraint. 
Justin Norman: So let's zoom further into the work to develop the talent pipeline for global business services, with a focus on South Africa, in particular. 
Sharmi Surianarain: I'm Sharmi Surianarain, Chief Impact Officer at Harambee Youth Employment Accelerator.
Justin Norman: Harambee is a major success story from South Africa, to the tune of nearly a million talent placed since its founding in 2011. And its success has led last year to its appointment as the official Presidential Youth Employment Intervention initiative in the country. Harambee's story starts, similar to many of the other platforms we've heard from and will hear from this season, with a mismatch of supply and demand in the labor marketplace. 
**Sharmi Surianarain: **At the start, we were conceived of as a way of addressing the demand-supply mismatch in the South African labor market. Many of the company CEOs and HR were struggling to fill entry-level vacancies. And it was a conundrum because South Africa did and continues to have a high unemployment rate. So it was clearly something that was off in terms of, the market. 
Justin Norman: The solution was to start with the demand side. 
Sharmi Surianarain: One was immediately to be demand-led to really address the problem that employers were facing. There needed to be some sort of breaking down of what a vacancy was. And we did quite a bit of assessment and diagnostic work in the early days to partner with companies to understand really what was a job spec, and instead of many years of experience and advanced qualifications, we realized that a job needed to be broken down into its components, which many young people in South Africa were completely eligible and capable of doing, and competent enough to do, and often times were almost invisible to the labor market because they were looking at the wrong proxies.
Justin Norman: And then on the supply side. 
Sharmi Surianarain: In turn, how do we equip a young person who may have the right skills to be visible to that job and to then signal the right credentials, and importantly, we realized that assessments played a key role in that. So we tried to construct alternative assessments instead of looking at just your school grades, and then a whole host of other kinds of demand-led skilling. And then importantly, almost working from the job backwards to skill someone. So it's being demand-led, but also it's actually having a specific job that we would almost match the young person first and skill and close their gap versus skill and then just hope that there would be a job that they would be ready for.
Justin Norman: Now, in doing the work to better connect supply and demand, global business services, and functions like call centers, have become a meaningful opportunity for Harambee and South Africa, in particular. 
Sharmi Surianarain: So, Harambee in the early days, much as it was a skilling and job matching platform, was importantly an advocate of not just matching to jobs of today, but creating the jobs of tomorrow.
Justin Norman: And this was born out of multi-stakeholder partnerships, much like Mark explained earlier. 
Sharmi Surianarain: So we partnered extensively with the government and the Department of Trade and Industry, but also the private sector to grow jobs in specific families, such as in the global business services industry, you know, in yesterday's terms, those are the offshoring jobs, call center jobs. And we really realized that these jobs were firstly plentiful and there were dignified jobs that could come to South Africa and we could specifically train young South Africans who may have had a matric and not much more into these jobs with a little bit of skilling and work readiness, such as spoken English, such as the ability to answer calls, and have great customer experience.
Justin Norman: And these are jobs that South Africans, with a little training and, importantly, with sector advocacy, could fulfill - and fulfill exceptionally - if given the opportunity. 
Sharmi Surianarain: The biggest insight I think there was that you didn't need a lot of qualifications and experience, you could actually get these jobs and do really well and perhaps outperform even industry norms and industry benchmarks, which I think has been a huge testament because this particular sector has been a huge growth, sector, for the country and for the economy over the past couple of years.
Justin Norman: And, here, South Africa has been the beneficiary of COVID-induced geographic diversification, as well.
Sharmi Surianarain: Comparing ourselves to global markets, lots of companies needed to diversify. So from a business continuity planning perspective, they needed to not have all of their eggs in one basket. And this was sorely tested during COVID. So lockdown measures across the world made it clear that investors needed different markets in which to place their contact sector service agents to continue marketing and servicing clients, so that meant a natural shift towards new markets such as South Africa. And South Africa's now built a reputation of being able to attract investors in this space and to the rest of the continent.
Justin Norman: And back to the question of why come to South Africa. Obviously developing a reputation for quality work is paramount, but there are other comparative advantages across the continent, as well. 
Sharmi Surianarain: I'll give you a very specific example of customer service. A lot of the work that had come to South Africa for time zone reasons, et cetera, we started servicing customer service work out of Europe and some work in the US. People comment on how young South Africans with the right training and skills are incredibly friendly, have the right customer service attitude, have great empathy for callers' concerns, and have relative accent neutrality when it comes to some of the other markets. 
Justin Norman: As a result, South Africa's reputation in this space is rising.
Sharmi Surianarain: South Africa took the first place in one of the big customer service awards for global business services industry awards two years in a row displacing India and the Philippines. 
Justin Norman: And, again, it's a testament to the country's multi-stakeholder approach to developing this sector, in particular. 
Sharmi Surianarain: There's definitely a growing trend and I think South Africa's been able to capitalize on that because of the concerted coordinated effort between folks like ourselves, business industry associations, and the government. And we're hoping that we can actually replicate some of the success in other countries across the continent, as well.
Justin Norman: That's it for this episode of The Flip. If you enjoyed this episode, we'd be very grateful if you considered sharing with a friend or a colleague who you think may enjoy it as well. For more from the flip, you can follow us on social media at @theflipafrica or subscribe to our newsletter on our website,
Thanks as always for listening, and we'll see you next time.