Frost: Government Projects Spur South African 'Smart Card' Market

July 5, 2006

The South African " smart card" market is poised to experience a significant growth spurt over the next six years with the introduction of smart cards by the banking and government sectors, according to Frost & Sullivan. Although both processes have been somewhat delayed, 2006 is likely to see some noteworthy movement in the market.

The Europay-MasterCard-Visa (EMV) migration is entering its final phase and should be completed this year. Banks announced their intention to introduce smart cards to clients in the third quarter of 2006.

"It is expected that a wide distribution of smart cards amongst banking clients will result in higher smart card adoption," said Frost & Sullivan research analyst Lindsey McDonald. "It will also result in the introduction of new value-added services utilizing smart cards."

Analysts said such positive trends in the banking sector will be reinforced by government initiatives. The South African government will use smart cards for a new national identification program; a tender for the manufacture of these cards is expected in 2006, with their rollout set for 2007.

The most pressing challenge facing market participants in the government sector is the issue of timing. Although the South African government is undertaking the national identification process, analysts said the program has been fraught with delays and their subsequent financial tolls.

"Market participants wanting to take part in government-driven projects have to ensure that their strategy is suited for this particular type of industry," said McDonald. "Companies will have to account for delays, requirements that are specific to the sector and they will be expected to address issues such as Black Economic Empowerment (BEE)."

In adopting a strategy specifically suited for the government sector, most companies have formed divisions focused solely on government contracts. "This level of attention to detail is ideal and should stand companies in good stead when trying to win government contracts," said McDonald. "It is important for these businesses to plan for delays that generally tend to occur with government projects."

Source: Frost & Sullivan.