S. African Court Slams Government as It Extends Welfare Deal

  • Constitutional court to oversee Net1 grants contract
  • Decision taken to avoid ‘potential catastrophe’ in payments

South Africa’s Constitutional Court ordered the nation’s welfare agency to extend Net1 UEPS Technologies Inc.’s contract to distribute grants to the poorest third of the nation’s people for a year to avoid a “potential catastrophe” and slammed the government’s handling of the matter.

The ruling on Friday effectively ends the threat of an interruption to a signature program of the ruling African National Congress but leaves President Jacob Zuma’s administration with a stinging condemnation by the nation’s top court of its performance. Social Development Minister Bathabile Dlamini must explain before the end of the month why she shouldn’t pay personally the costs of the case. The court said it would supervise the new agreement.

African National Congress Women League (ANCWL) members demonstrate support of Bathabile Dlamini outside the Constitutional Court on March 15.
Photographer: Ginaluigi Guercia/AFP/Getty Images

Bathabile Dlamini

(Photo by Elizabeth Sejake/City Press/Gallo Images/Getty Images)

“This court and the whole country are now confronted with a situation where the executive arm of government admits that it is not able to fulfill its constitutional and statutory obligations to provide for the social assistance of its people,” Justice Johan Froneman said in the ruling. “And in the deepest and the most shaming of ironies, it now seeks to rely on a private corporate entity with no discernible commitment to transformative empowerment to get it out of this predicament.”

Constitutional Obligation

The court said the South African Social Security Agency’s contract extension with Net1’s Cash Paymaster Services unit must continue on the same terms as the previous agreement that expires on March 31, although the company can ask the Treasury to review the pricing. CPS has a constitutional obligation to continue dispersing the monthly stipends to more than 17 million people, Froneman said.

“The court has basically said the minister and Sassa cannot be trusted to do what they are supposed to do and it is going to supervise the process to make sure they do their job in a very hands-on manner,” said Pierre de Vos, a law professor at the University of Cape Town. “It is an excellent judgment because in a way it saves the day and it tries to protect the country from the incompetence of the minister.”

The system of payments of more than 150 billion rand ($12 billion) a year was on the brink of collapse because Dlamini and Sassa failed to find a new company to administer the program after the court declared the original contract with Net1 invalid more than two years ago.

“We dropped the ball, we apologize to the nation,” Sassa Chief Executive Officer Thokozani Magwaza told reporters outside the court in Johannesburg.

Zuma’s Missteps

The fiasco is the latest in a series of missteps by Zuma’s government that have curbed growth, dented investor confidence and stoked conflict between government officials and departments. Zuma on Thursday rejected criticism of Dlamini, saying there was no crisis. 

This is the second time the nation’s highest court has censured Zuma’s administration following its ruling a year ago that the president violated the constitution for failing to repay taxpayer money spent on his private home.

Dlamini said in a statement that she will abide by the court’s ruling and “sincerely apologized to every beneficiary for the anxiety and fear they had to endure in the past few weeks.” Net1 said in a stock exchange filing that it’s committed to ensuring grant payments continued after March 31.

Human rights groups and opposition parties have accused Net1 of using information gathered on grant beneficiaries to sell services ranging from mobile-phone airtime to loans to some of South Africa’s poorest people without them always understanding what they were agreeing to. It has denied the allegations.

Ethical Behavior

The court ruled that personal grants data must remain private and not be shared for the purpose of marketing goods and services.

Net1’s second-biggest shareholder said that while it welcomed the court ruling and its oversight of the new agreement, there should be changes in the company’s board if it doesn’t alter is behavior.

“It has done things that may be legal but are not, to my mind, ethical,” Andrew Lapping, chief investment officer of Allan Gray Ltd., said by phone from Cape Town. “There must be accountability. If we cannot see firm proof they’re taking up that responsibility there has to be action.”

Lynette Maart, national director of the human rights group, Black Sash, which brought the case to the Constitutional Court, called the ruling a “victory.”

“What is quite significant in this instance is the protection of confidential data and dealing with all these rogue marketing devices,” she said. “All of that is now protected.”

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