Government IT, financial services the highlights in post-pandemic IT spending
When it came to the digital transformation required for society and the economy to function through the Covid-19 pandemic, we went ‘hard and early’ in our part of the world, to borrow the Prime Minister’s phrase.
Yes, many big IT projects were deferred last year, but new and urgent ones took their place particularly in the government sector. A more general scramble to enable cloud services, roll out “as a service” software and equip employees with devices so they could work from their homes buoyed the IT sector through tough times. Tech businesses thrived by helping their customers survive.
Now the key market research groups looking to the outlook for the next few years predict respectable if not stellar growth as IT spending patterns settle down to a new normal. Analyst group IDC Research reported this week that IT spending in Australia and New Zealand is set to grow by 2.1% this year to US$84 billion.
Looking further out to 2025, IDC is forecasting an annual compounded growth rate of 2.5% overall. That’s a respectable rate of growth. But it is worth drilling deeper to explore the categories that are expected to outstrip that growth rate in the next few years.
The financial sector is where the key opportunity for tech companies will be looking out to 2025, according to IDC.
Our financial services market is dominated by the four large Australian banks, each of which is spending heavily on digital transformation efforts. The move away from legacy banking systems, the transition from physical branches and ATM-based services to digital and mobile platforms and a focus on cybersecurity is dominating IT work programmes.
But a host of smaller competitors looking to disrupt financial services with everything from mobile payment wallets to blockchain-based platforms are also investing in tech.
The other category also set to grow faster than the market, in general, is “distribution and services” with 4.30% year on year growth. Our services industry is at the heart of the economy and spans everything from retailers and hospitality to healthcare, legal and accounting services. Some of these industries have dragged the chain on digitisation, relative to other parts of the world, but are now catching up.
The pandemic has also accelerated efforts to make supply chains more resilient and intelligent, from the source of production to delivery at a customer’s front door.
Big uptick in government IT spending
While IDC gives the IT public sector a more modest 3.2% annual growth rate out to 2025, rival firm Gartner is more bullish. It expects New Zealand government IT spending in 2022 to grow 7.9% year on year to $2.6 billion.
That would see it outpace the 6.5% rate of growth it is picking for global government IT spending next year, totalling US$557.3 billion.
Within government IT spending, the category seeing all the action is IT services. It will grow 7.5% next year to be worth $1.1 billion, says Gartner.
“Governments will continue to accelerate investments in digital technologies to respond and recover from the continuing evolution of public health uncertainties due to the COVID-19 pandemic,” say’s Irma Fabular, Gartner’s vice president of research.
“The disruptions caused by the pandemic have also reinforced a key digital government tenet, which is public policy and technology are inseparable.”
Government spending on software is tipping to rise 18% to $840 million as the government joins the private sector in pursuing more software as a service offerings, but continues with several bespoke software development projects.
Internal services on the other hand will drop 9%, with telecommunications expected to dip 4.3% and devices down 2.5%, admittedly on the back of a major spending splurge in 2020 on equipping public servants to work from home.
Gartner notes that stimulus plans are driving growth in government IT spending all over the world with projects earmarked for spending across “sustainable growth, social programs, education, cybersecurity, and digital inclusion”.
Over 50% of government agencies will have modernised their critical core legacy applications by 2025, says Gartner.
“Governments are rethinking their public cloud strategies to accelerate IT modernization, improve efficiencies and increase data security,” notes Fabular.
Digital identity efforts are also getting more attention and investment from governments around the world.
“Digital identity is moving beyond authenticating citizens online and signing remote transactions,” she says.
“To raise the chances for greater adoption of digital identity, governments must treat privacy, security and user convenience as critical success factors.”
Next few years = opportunity
The bottom line is that the next few years out to 2025 will see the replacement of legacy systems, migration to the cloud and adoption of new technologies that will set up private and public sector organisations alike for the decades ahead.
This represents a big opportunity for the tech sector that can enable digital transformation, with a few lucrative categories worth targeting. The outlook is positive despite what the world has been through over the last 18 months.
IDC ‘s Future Enterprise Resiliency surveys, which track organisations’ journey to recovery, show that more than 80% of Australian and New Zealand organisations are either entering the ‘Return to Growth and Transformation stage’, or have entered ‘The Next Normal’ where their business has stabilised.
This is the highest rate measured across the Asia Pacific region, with only China showing higher levels of positive sentiment. We aren’t out of the woods yet, but we appear to have the right mindset in this part of the world to make the most of what’s ahead.
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