BRIC or BRICS? The Curious Case of South Africa

by Tristan Hugo-Webb 0

When identifying the world’s leadingdeveloping economies, more often than not you will hear the acronym”BRIC,” which stands for Brazil, Russia, India and China. Whiletheir economies may rank 6th, 9th, 10th and 2nd respectively, thedomestic payments landscapes vary greatly. For example, Brazil andChina have registered robust growth in recent years and Brazil hasbecome the 2nd largest payment card market in the world behind theUnited States. Russia’s and India’s domestic payment markets arerelatively underdeveloped.

While the merits of the respective payment markets of Brazil,Russia, India and China are a topic for another conversation, an”S” for South Africa is increasingly being added to BRIC acronym.However, does the South Africa payment market deserve to be in samediscussion as the other BRIC members?

It is the largest economy in Africa, but South Africa is stillonly the 28th largest in the world. The country also has the lowestpopulation at 50 million compared with China and India (1 billioneach), Brazil (201 million), and Russia (143 million). With thisimmense population disparity, associating payment segments on thebasis of totals would be like comparing apples and oranges, thuscomparing growth among important payment segments will provide amore effective judgment on whether the South African paymentsmarket is worthy of BRICS status.

Using payment market statistics from 2009-2011 (the only yearsavailable for South Africa) from the Bank for InternationalSettlements, I compared the compound annual growth rate (CAGR) ofthe payment card, ATM, and point of sale segments across Brazil,Russia, India, China and South Africa.

In terms of payment card growth (includes all payment card types),South Africa had a CAGR of 5.67% between 2009 and 2011, among theother BRIC countries, only Brazil had a lower rate (2.56%). Russia(16.67%), India (26.28%) and China (12.60%) each registereddouble-digit growth.

The ATM segment had similar showings, with South Africa exceedingBrazil’s ATM growth (4.60% to 1.64%) but falling well short of thedouble-digit growth Russia, India and, China experienced. Russiahad the highest growth at 17.21%. Lastly, among POS terminaldeployment, South Africa trailed everyone with 5.45% growthcompared with Brazil (7.49%), Russia (14.25%), India (10.87%), andChina (28.52%).

By no means do the payment card, ATM and POSsegments reflect an entire payment market. In fact, according tothe World Economic Forum’s 2012 Financial Development Index, SouthAfrica ranks higher than three of the four BRIC members. Coming inat 28th, South Africa only trails China (23rd), with Brazil (32nd),Russia (39th) and India (40th) trailing Africa’s largest economy.The fact that South Africa ranks higher in terms of financialdevelopment than other BRIC countries suggests that its lowergrowth rates across payment segments may be due to more developednature of the market.Though SouthAfrica may have a credible claim on the S of the BRICS, it stillhas significant hurdles to overcome before it can be called a fullydeveloped payment market. For example, just over half (54%) of thepopulation over 15-years old have a bank account at a formalfinancial institution. Some 45% and 8% of the population over15-years old have a debit card or credit card, respectively. But incomparison to the other BRICs, these figures seem right on par fora developing country.

In Brazil, 56%, 41%, and 29% of the population have a bankaccount, debit card and credit card, respectively. In Russia, 48%,37%, and 10% of the population has a bank account, debit card andcredit card, respectively. In China, 64%, 41%, and 8% of thepopulation has a bank account, debit card and credit card,respectively. And in in India, 35%, 8%, and 2% of the populationover 15 has a debit card or credit card respectively.Though South Africa’s growth in many paymentsegments may be slower than other BRIC countries, overall itquickly becomes clear that South Africa is deserving of the S inBRICS. Furthermore, the country’s potential means South Africarepresents a strong and attractive international market that willonly grow more appealing over time.For more detailedinternational market reports on BRIC members and others, see Mercator AdvisoryGroup’s collection of reports, including, the market updatereports on Brazil, China and Russia published in May 2012, February2012, and April 2013 respectively.