S. Africa's Gordhan Says Extending Net 1 Welfare Deal Unlawful

  • Constitutional court declared Net1 contract invalid in 2013
  • Treasury suggests appointment of an interim service provider

South Africa’s finance minister told his cabinet colleague in charge of welfare that her plan to extend a contract with a unit of Net 1 UEPS Technologies Inc. would be “unlawful,” a letter seen by Bloomberg shows.

On Feb. 1 the South African Social Security Agency, which Social Development Minister Bathabile Dlamini is responsible for, told parliament that the only viable option to ensure that 17.2 million people keep getting their payments in April in the 139.5 billion rand ($10.7 billion) a year program would be to extend the Net 1 contract that expires at the end of March. That contract has been declared invalid by the country’s Constitutional Court because of concerns over how it was awarded and extending it would need the court to overturn its 2013 decision.

“Sassa’s proposed interim agreement with Cash Paymaster Services will not be lawful,” Finance Minister Pravin Gordhan said in a letter to Dlamini dated Feb. 1. “The options proposed by the Sassa team cannot be supported unless the Constitutional Court were to approve such an option.” Cash Paymaster is owned by Net 1.

‘Legal Challenges’

“We have not had sight of the letter allegedly written by Minister Gordhan,” Serge Belamant, the chief executive officer of Net 1, said in an e-mailed response to questions. “I am quite sure our Constitutional Court could sanction such an extension if this were to be in the best interest of 17 million beneficiaries.”

Gordhan said that should Sassa press ahead with its plan, it would open up government to “legal challenges” and pointed out that Sassa had asked that Treasury approval for its proposal be waived.

The Treasury proposes that a service provider be appointed for distribution of payments to welfare recipients through cash points or bank accounts, he said. Allowing banks to take over from CPS without a tender would breach the rules of the Public Finance Management Act, Belamant said.

Post Office

The Treasury was asked for its advice by the Department of Social Development and Sassa and provided various options that they could take, it said in an e-mailed statement. The final decision is up to the agency, the Treasury said.

“National Treasury is happy that the DSD has committed to seek the view of the Constitutional Court insofar as the option it prefers is concerned on which the court has previously made a determination,” it said.

Elements of the letter were earlier reported by Johannesburg’s Star newspaper. The Star also reported that a former CPS employee had asked Belamant to join the South African Post Office in taking over the contract. That was refuted by the Post Office.

“Sapo did not approach either CPS or Net 1 in relation to Sassa grants,” the post office said in an e-mailed statement. The Post Office has said it would bid to distribute the payments.

‘Illegal Avenue’

Almost 23 years after it was democratically elected into power, the ruling African National Congress government should have built internal capacity for Sassa to distribute welfare payments and cannot resort to illegalities to avoid an impending crisis, according to Ndangwa Noyoo, an associate professor at the University of Johannesburg’s social work department.

“Its ridiculous to even champion or propagate for an illegal avenue,” Noyoo said by phone on Wednesday. “Treasury is very clear that it operates on laws and legislative policies. If the millions of South Africans who are grant recipients are not paid, it would be a catastrophe and an indictment of the ANC government that sees itself as a caring government.”

— With assistance by Loni Prinsloo, and Ana Monteiro

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