On Wednesday 22 February the Minister of Social Development, Bathabile Dlamini, confirmed in Parliament that the South African Social Security Agency (Sassa), responsible for the disbursement of social grants in South Africa, would not be able to make the March 31 deadline for finding a service provider, and that they were in negotiations to extend the invalid contract currently in place with Cash Paymaster Services CPS. The South African Treasury opposes the awarding of any further tender to CPS, but Dlamini reported that the Treasury would consider such a contract if the Constitutional Court, which had declared the original contract invalid acceded. A letter requesting a deviation to enter into a new contract had been sent on 7 February.
The Constitutional Court now faces a fateful decision: one with potentially dire consequences for the South African social welfare system – and for the millions of poor and vulnerable people that depend on it. At stake are not only the legal questions involved in rolling over an invalid contract worth billions of Rands. More seriously, the dereliction of duty on the part of Sassa that brought about this crisis is in danger of perpetuating and consolidating state capture of a critical and important part of South Africa’s social policy infrastructure – an arrangement that delivers grant recipients on a silver platter into the hands of unscrupulous financial services companies.
The central facts around the Sassa crisis are well known. Cash Paymaster Services (CPS) – originally an FNB subsidiary based in Kokstad, Kwazulu Natal, has been distributing social grants in some provinces since 2000. In 2012 it won a controversial tender to deliver this service nationally and exclusively. This award was challenged in court, and in 2013, in a unanimous judgement, the Constitutional Court found the tender irregular and ordered that should be set aside. In a subsequent ruling in 2014, the Concourt declared the contract invalid and ordered Sassa either to issue a new tender by or to insource, specifying that this process be concluded in October 2015. This did not happen. In November 2015, with no suitable external service provider identified, Sassa submitted milestones and timelines to the Court for insourcing. But as the new deadline came closer, interested and concerned parties, including the Black Sash, sounded warning bells, claiming that the agency had failed to adhere to any of these court-mandated milestones. By October 2016, when time came to report to the Parliamentary Portfolio Committee on Social Development, the cat was out of the bag: Sassa had again done almost nothing to implement the Court order. On Monday 13 February, with the end of the CPS contract only six weeks away, Sassa announced that they would file papers with the Constitutional Court proposing that the invalidity of the contract would be suspended for a further year. But even this eleventh hour action was blocked by the Minister.
The Constitutional Court and the South African Treasury have thus been presented with a fait accompli: if the invalidity of the contract is not further suspended, the lives of millions of South Africa’s poorest and most vulnerable people, many of whom depend on grant income for survival, will be thrown into chaos. Quite aside from the pain and suffering this will cause them, it is likely to bring about political turmoil. Sassa has put a gun to the head of South Africa: condone an illegal contract, or face social and political chaos.
But this is not the whole story. Much more is at stake here than the extension of an invalid contract and the risk of non delivery. Beyond these urgent issues lies a more fundamental question about Sassa’s complicity in a subtle but fateful form of state capture: one that threatens the long term future of South Africa’s social policy infrastructure.
Here, it is important to understand that CPS is not acting alone. They are a subsidiary company of Net1, a listed global financial services and logistics company. Also part of Net1’s empire are financial services companies like MoneyLine, EasyPay, Manje Mobile Solutions, Smart Life and others. Central to Net1’s business model is their Universal Electronic Payments System, a proprietary fingerprint-based biometric authentication and payment infrastructure . This has been central to the roll-out of the Sassa smart card that enables electronic payment of social grants. While this has enabled great efficiency gains, and while CPS claims it has also resulted in significant reduction of fraud, this setup has another important consequence: as scholar Keith Breckenridge has pointed out, grant beneficiaries are captured within a private technological and financial network owned and controlled not by SASSA, but by its service provider.
These relationships were factored into Net1 and CPS’s strategy in rolling out grant payments. Millions of grants beneficiaries, for example, have not only been provided with a SASSA account; their accounts have also been linked to EasyPay Everywhere, a bank account operated by MoneyLine and CPS’s banking partner, Grindrod Bank. All this is part of an explicit two-stage strategy on the part of Net1: a ‘First Wave’ in which it rolls out its technological infrastructure in an area where there is a clear and demonstrated need, and then a ‘Second Wave’ in which they use this infrastructure to market a wide array of products and services to an essentially captive customer base.
This creates two problems. Firstly, this arrangement appears to be in violation of competition law. It looks as if Net1 is making use of CPS’s privileged position as social grant paymaster to give its sister companies ‘first bite’ and privileged access to a potentially vast client base.
This raises an issue that’s often forgotten in sweeping generalizations about the need to include ‘the unbanked.’ Poor people do need access to banking services, but these need to be appropriate. And the reality is that, while electronic services are convenient poor people also need and value cash. Financial policymakers may sneer at tiny amounts kept under mattresses and in jars, but given the realities of rural and township life, those concrete practices may often give poor people much more say over their money than an electronic facility under the control of unknown and unaccountable third parties.
Deborah James and Dinah Rajak have shown how in South Africa the history of “credit apartheid” and paternalistic control over poor people’s finance has created a situation where creditors wield disproportionate power. Unbridled financial inclusion of the poor may amount to adverse incorporation into a financial sector geared towards preying on them. Here it is important to remember that South Africa’s legal system is greatly slanted in favour of creditors.
Already, the Black Sash has collected evidence of numerous instances of unauthorized and unlawful deductions from SASSA and EasyPay accounts; often with very little recourse. CPS’s close collaboration with Grindrod Bank delivers social grant beneficiaries – many of them aged, infirm, illiterate, and unsophisticated in the ways of the modern world – into the hands of unscrupulous operators who are only to ready to sell them services they do not need, or to secure their unwitting consent to arrangements that are not in their favour.
This is the real threat to South Africa’s future posed by the SASSA deal. The ConCourt’s order tasked SASSA with ensuring that the payment of social grants happened in a manner that protected the rights, interests, and confidential data of grant beneficiaries. This ruling created an important opportunity to ensure that financial inclusion happened in a beneficial, ‘pro-poor’ way. But SASSA appears to have squandered that opportunity. Instead, it has created a situation in which CPS and Net1 hold all the cards.
At present, the Concourt and Treasury have almost no leverage to prevent their service provider from simply walking away on 1 April 2017. Net1 CEO Serge Belamant has made it clear that he is not interested in extending the contract on its present terms. He is in a position to ask for whatever he wants, including provisions that lock claimants even more tightly into his empire. If he is not stopped, SASSA will have created a situation in which the social grants payment system in effect becomes simply a financial conduit between the South African fiscus and the shareholders of Net1 and its subsidiary companies.
An edited version of this article has also been published in The Conversation