Welfare for 17m depends on contract extension

Residents in Khayelitsha Site B queue for their Sassa grants. Picture: Tracey Adams

Residents in Khayelitsha Site B queue for their Sassa grants. Picture: Tracey Adams

Published Feb 2, 2017

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Johannesburg - South Africa’s government will ask the

Constitutional Court to allow it to extend a welfare distribution contract with

Net 1 UEPS Technologies’s Cash Paymaster Services unit, which the nation’s top

court had ruled invalid, to ensure that 17.2 million people continue being

paid.

The payments, which amount to R139.5 billion a year, are a signature policy of the ruling African National

Congress, which says the grants are an important measure to reduce inequality

in the nation almost 23 years after the end of white-minority rule. In previous

election campaigns its officials have told rallies that if another party came

to power the payments may end.

While Net 1’s contract expires at the end of March, the

South African Social Security Agency hasn’t appointed a replacement or made

arrangements to take over the payments itself. Although six options, including

using other banks, were considered, granting Johannesburg-based Net 1 a

one-year extension was considered the only viable one, SASSA Executive Manager

Raphaahle Ramokgopa told lawmakers in Cape Town on Wednesday. The agency is

effectively asking the nation’s highest court to overturn its own ruling. Net 1

shares surged.

“The only thing that would make us survive is to go to

court and ask for the suspension of the invalidity” of Net 1’s contract, she

said. Any other option “will not enable SASSA to pay on April 1, 2017.”

If the court refuses to allow the extension support for

the ANC may be damaged.

Read also:  SA may extend Net 1's welfare contract

Welfare grants are “possibly one of the most important

instruments available to the ANC and to the government in order to mobilize

support,” Dirk Kotze, a politics professor at the University of South Africa,

said in an interview from Pretoria. “If there were interruptions for a month or

so, the ANC would be regarded as the one who should take responsibility for it.

A huge percentage of the South African population would be affected.”

Forced emergency

ANC legislators welcomed the approach taken by SASSA,

saying it would ensure welfare payments will continue in April. Opposition

parties criticised SASSA for not having an alternate plan should the court

refuse to sanction the extension of Net 1’s contract and alleged that it had

been politically pressured to retain the company’s services.

“The Constitutional Court may have no option but to

condone the extension of Net 1’s existing illegal contract to ensure the

payment of welfare grants isn’t interrupted,” said Lindy Wilson, the DA’s

shadow deputy minister for social development. “They have done nothing for two

years to force this emergency.”

Read also:  Three major banks eye welfare job

Thokozani Magwaza, the welfare agency’s chief executive

officer, denied that the agency had tried to circumvent the court

order, saying its attempts to issue a new tender were upended when two

potential bidders withdrew and none of the others met the technical

specifications.

‘No pressure’

“It’s not like we have been sitting on our laurels,” he

said. “The fact remains that a decision needs to be taken. Come April 1 we need

to pay. We have not had any political pressure on the issue of CPS,” he said

after allegations of interference were made by opposition parties.

Ramokgopa said SASSA will use the extension of Net 1’s

contract to give it time to issue a closed tender to 27 banks to take over the

payments for welfare recipients that have accounts and appoint a new company to

distribute cash to those that don’t. The agency ultimately aims to take over

the entire payments system itself. The tender will be issued by the end of

March and banks will be required to express their interest in May with

contracting expected in June.

Funeral insurance

SASSA want the banks to offer accounts designed to

protect welfare recipients, often poor rural citizens with little understanding

of how financial systems work, from companies that offer services such as

funeral insurance for children and mobile-phone airtime and then make

deductions directly from state payments.

The Constitutional Court ruled the Net 1 contract invalid

in 2013 because of the way it was awarded a year earlier. Net 1’s chief

executive officer, Serge Belamant, said on Tuesday his company is willing to

keep providing the service and would also consider selling the unit that

handles the payment to the South African government. Belamant wasn’t

immediately available to comment on Wednesday.

Read also:  SA scrambles as R140bn welfare threatened

Net 1 has been in legal battles with the government over

the right to allow deductions and it part owns some companies that offer the

services.

“Up to now, CPS have been doing a good job with regard to

the payments of grants,” which must be separated from the issue of the

deductions, Magwaza said. “I have got to divorce the two things. CPS is not

deducting per se, Net 1 is one that is doing the deductions. It’s unfortunate

they are in the same stable.”

‘Upper hand’

Net 1 shares rose as much as 11 percent to $12.74 in New

York and traded at $12.63 as of 12: 25 p.m. local time.

"It’s a great result for South Africa,” Belamant

said in an interview on Wednesday. “This is probably the best system in the

world. The question is are we going to end up with another dozen lawsuits. But

you’ve got to take the good with the bad. ”

Net 1’s CPS unit has exploited its position and could now

benefit further from an extension, said Bonita Meyersfeld, head of the Centre

for Applied Legal Studies at the University of the Witwatersrand in

Johannesburg.

“They are capriciously targeting beneficiaries who are

not necessarily literate,” she said in an interview. Now “they have the upper

hand that makes their negotiating very strong. They are in a very strong

negotiating position. I am nervous about what the cost of this would be.”

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