S. Africa Sued to Protect $9.7 Billion in Welfare Payments

Updated on
  • Black Sash seeks to intervene in cases involving Net 1
  • Net 1 has challenged government rules on grant deductions

South Africa’s government is facing a counter legal challenge in a dispute with Net 1 UEPS Technologies Inc. with a rights group demanding that it protect welfare recipients from companies that are allegedly selling the nation’s poorest people goods and services they don’t need and deducting payments from grants paid to them by the state.

Black Sash Trust, a human rights activist group, on Wednesday applied to the High Court in Pretoria to intervene in cases between the state and Net 1 and its associates. Net 1 has a contract to distribute welfare grants on behalf of the government, while companies in which it has shareholdings in, and board members in common, sell grant recipients services ranging from loans to mobile phone air time.

“The state is under a constitutional and legal obligation to protect the beneficiaries of social grants from exploitation,” Black Sash, which is represented by the Johannesburg-based Centre for Applied Legal Studies, said in court papers. It should be ordered to “make regulations under the Social Assistance Act that adequately protects social grants from exploitation in a manner that prevents grant beneficiaries receiving full benefit from them,” the group said.

The dispute between Johannesburg-based Net 1 and the government comes after regulations were amended in May to stop deductions by insurance companies from child support grants for funeral insurance polices for children, as well as for other goods and services. Of South Africa’s 53.9 million people, 16.9 million receive welfare payments. The state paid 129 billion rand ($9.7 billion) in grants in the last financial year.

Net 1 Challenge

Welfare recipients are being taken advantage of because they don’t always understand what they are signing up for, according to the South African Social Security Agency. Net 1 says that they should be allowed to spend their money as they choose. Black Sash contends that the state must protect those on welfare from depletion of their grants.

“If the court were to come back and say Sassa’s amendments are wrong, then Black Sash says the minister has a duty to enact the legislation to protect the beneficiaries and we support that 100 percent,” Dianne Dunkerley, executive manager of grants administration at Sassa, said by phone from Pretoria. “Our response has to be to make sure that the money gets to the grant recipients without being siphoned off.”

Net 1 and its associates “seek to be able to continue to have de facto unrestricted access to the ‘Sassa bank accounts’ of social grant beneficiaries to whom they market and provide products and services,” Black Sash said.

Financial Access

While Net 1 hasn’t yet seen the Black Sash court application, the organization “is to be commended for their drive to protect beneficiaries,” Net 1 Chief Executive Officer Serge Belamant said in an e-mailed response to questions. “However, this protection cannot be provided at the cost of flouting the constitutional rights of individuals. We believe that social grant beneficiaries are, on the whole, more than capable to conduct their financial affairs and to believe otherwise is at best patronizing.”

Black Sash provided case studies in its court papers where it states that grant recipients are unaware of the linkages between Net 1 and its associates, often unaware of the charges associated with products and said that products and services are sold at the sites where grants are paid out.

“What should not be done is to restrict access to financial services and as a result drive these activities underground,” Belamant said. “This would lead to abuse, higher prices, poor quality, extortion, violence, no supervision and a lack of visibility. We do not believe that this is what the Black Sash or anyone else wishes to accomplish.”

Separately, Net 1 said in a statement on Wednesday that the Competition Commission had declined to refer a complaint by a lawmaker against it to the Competition Tribunal, which rules on competition issues. The lawmaker, Elza van Lingen, had complained that Net 1 and Grindrod Bank Ltd., which provides the accounts into which Net 1 pays grants, used information given to them by the government about grant recipients to market services, putting it an advantage over other companies.

— With assistance by Antony Sguazzin, and Renee Bonorchis

(Updates Net 1 comment from eighth paragraph.)
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