South Africa Takes Over Its Welfare Payments, Ousts Net 1

(Bloomberg) -- The South African Post Office will take over the distribution of welfare grants from current service provider Net 1 UEPS Technologies Inc., complying with a Constitutional Court ruling, Minister in the Presidency Jeff Radebe said.

The agreement between the South Africa Social Security Agency, known as SASSA, and the state-owned national postal service will take effect from April 1, Radebe told reporters in Pretoria Sunday. The Constitutional Court ruled in 2014 that the contract with Net 1 unit Cash Paymaster Services was invalid, but the deal was this year extended until 2018 to ensure grant payments didn’t stop after the welfare department failed to comply with its ruling.

About 17 million South Africans receive various forms of social grants costing the government more than 150 billion rand ($11 billion) annually in what is the single biggest program instituted by the post-apartheid government to alleviate poverty in one of the world’s most unequal nations. Most of the recipients are less than 18 years old, according to the Department of Social Development.

“SASSA considered various options for the replacement of service providers and preferred the option of the South African Post Office as the most suitable one,” Radebe, who heads an inter-ministerial committee tasked with ending the crisis, said.

Net 1 in May agreed to pay its founder Serge Belamant $8 million and about a 14 percent premium on his shares after he agreed to step down as chief executive officer amid a storm of controversy concerning the South African contract. Net 1 has been accused by civil rights groups of using data gathered on welfare recipients to markets services ranging from the provision of loans to funeral insurance. The company has denied wrongdoing.

Social Development Minister Bathabile Dlamini, whose conduct around the Net 1 contract was criticized by the court, didn’t attend the Sunday announcement.

A handover period from Cash Paymaster Services to the Post Office would take about six months and end in August next year, according to Mpumi Mpofu, director general of the Department of Monitoring and Evaluation and chairwoman of the technical committee overseeing the transfer.

“About 1.8 million recipients will still receive their payments in cash and SASSA will seek for an alternative service provider to take this over,” she said at the same event.

The cost of distributing the grants would remain the same to government and might even fall in the future, the Post Office’s Chief Executive Officer Mark Barnes told reporters. “The Post Office network has already been paid for and so the costs may even come down.”

Radebe said the new system will also allow for the participation of other partners such as enterprises and commercial banks in the payment of welfare grants to beneficiaries.

To contact the reporter on this story: Paul Vecchiatto in Cape Town at pvecchiatto@bloomberg.net.

To contact the editors responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Kim Robert McLaughlin, Bruce Stanley

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