South African Welfare Confusion Grows as Court Bid Withdrawn

  • Sassa CEO filed lawsuit to continue contract until March 2018
  • Constitutional Court said in 2013 Net 1 contract is invalid

South Africa’s welfare agency said it withdrew its application to the nation’s highest court to extend a payment distribution contract with Net 1 UEPS Technologies Inc. the day after it filed it.

That’s added to confusion around how the government plans to ensure more than 17 million people continue to get their payments in April.

The application was filed by Chief Executive Officer Thokozani Magwaza on Tuesday even as social development ministry officials told lawmakers on the same day that the South African Social Security Agency would inform the Constitutional Court of its decision to conclude a new contract with Net 1. Nathi Mncube, a spokesman for the court, said that while it had been notified of the intention to withdraw, the process is yet to be completed.

While the court ruled the current contract, which ends this month, invalid in 2013 because of the way it was awarded, the welfare agency failed to comply with a ruling that it conduct a new tender to find an alternative service provider.

The withdrawal comes after Johannesburg’s Star newspaper reported Tuesday that Magwaza had been suspended. Magwaza denied in an interview that he’d been suspended and was on sick leave. He said Social Development Minister Bathabile Dlamini had disagreed with his decision to write to the country’s Post Office to ask if it could distribute the more than 140 billion rand ($10.7 billion) in welfare annually.

Poor judgment

Sassa’s change of heart on the court case demonstrates its poor judgment, human rights group Black Sash said in a separate court filing on Wednesday.

“Sassa appears to consider this is an acceptable mode of behavior by a major
organ of state performing a vital social function,” Black Sash said. “I respectfully submit that this demonstrates that its judgment as to what is acceptable cannot be relied upon.”

South African President Jacob Zuma has asked Social Development Department Director General, Zane Dangor, to a meeting in Pretoria over the issue, Johannesburg’s News 24 said, citing Dangor. Bongani Ngqulunga, Zuma’s spokesman, said the report was incorrect.

Treasury Warning

The Treasury, which falls under Finance Minister Pravin Gordhan, warned Dlamini in a letter last month that extending the contract without approval from the Constitutional Court would open the government to legal challenges. On Tuesday Black Sash Trust filed a legal challenge asking the court to have oversight of the terms of any contract extension or new contract with Net 1 and for the minister and Sassa to regularly report to it on progress in finding an alternative to Net 1.

Zodwa Mvulane, an official at the welfare agency, told lawmakers on Tuesday that Sassa had decided to conclude a new contract with Net 1 because no one else was capable of stepping in to pay the grants. By doing so it may be seen to be seeking to circumvent the Constitutional Court’s 2013 ruling.

“Sassa knew in August or September last year that they would be unable to handle the takeover of grants on 1 April 2017,” the opposition Democratic Alliance said in an emailed statement. “Why did they not put out a competitive bid then already?”

Deputy President Cyril Ramaphosa said the government would ensure the payment of grants wasn’t disrupted.

"The Sassa matter is being addressed and the Armageddon you are talking about will be avoided,” he said in response to a question from a old lawmakers in Cape Town on Wednesday. “We are fully aware of the Constitutional Court requirement of having to go back there and that is underway, that is being addressed."

Fee Increases

Gordhan announced increases of between 3.4 percent and 7 percent to different categories of welfare payments from state old-age pensions to child-support grants in his Feb. 22 Budget. A letter from Magwaza to the Treasury that was filed as part of the Constitutional Court application showed the fee Net 1 will charge per beneficiary under a new or extended contract may rise to 22 rand to 25 rand, from 16.44 rand currently.

The central bank said it favors the welfare agency using a range of banks to distribute grants, which would eliminate the need to award a “winner-takes-all” tender, reduce costs and enable grant beneficiaries to select accounts and products of their choice.

“The South African Reserve Bank will support a transitional option chosen by Sassa that will ensure continued payment of social benefits,” Tim Masela, head of the bank’s national payment system department, told members of Parliament’s social welfare committee in Cape Town on Wednesday. “The SARB however believes that finalization and implementation of the future architecture of the social benefits payment system should be undertaken without further delay. Choices have to be made urgently.”

— With assistance by Antony Sguazzin, and Paul Vecchiatto

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