Bunfight to grab welfare grant billions from Net 1 as businesses eye juicy profits

Serge Belamant, CEO, Net1

The business of distributing welfare grants to South Africa’s poor is a lucrative one, which explains why so many parties – from the post office to banks – are keen to wrestle the contract from the company that has been fortunate enough to be doing this business. Bidders are keen to take over from a South African company that is not particularly well-known in the public domain but is one of the country’s unloved gems listed on the US Nasdaq exchange, Net 1 UEPS Technologies (NASDAQGS: UEPS; JSE: NT1). Rumour has it that the big commercial banks would like to take the contract, while the Post Office’s Mark Barnes believes his organisation should be included among the multiple services providers because it has great reach in rural communities. Net1 stole the march on this work, thanks to its proprietary mobile banking technologies. The company has impressive international reach, noting that it operates payment processors in South Africa and the Republic of Korea. Through Transact24, Net1 offers debit, credit and prepaid processing and issuing services for Visa, MasterCard and ChinaUnionPay in China and other territories across Asia-Pacific, Europe and Africa, and the United States. Net1 also works through Masterpayment to provide payment processing and enable working capital financing in Europe, it says. A Net 1 weakness, however, is that it has failed to effectively address allegations of BEE fronting and other irregularities. Unpolished in dealing with journalists, Net 1’s executive chairman Serge Belamant has been in the news for evading questions rather than clarifying facts, while his associates have used expletives to fob off investigative reporters. The ANC, meanwhile, is unlikely to easily change a system that is already working. Interrupting payment to a significant swathe of its supporters would not be a good idea, as it could spark protest and further erode loyalty to the party. Expect this bunfight to get bigger, as there are billions of rands at stake. – Jackie Cameron

By Loni Prinsloo, Thembisile Dzonzi and Renee Bonorchis

(Bloomberg) — South Africa’s government, set to miss a deadline to appoint a new distributor of welfare grants worth about $10.3 billion a year to more than 17 million people, asked aspirant bidders to an information session as the end of a contract with Net 1 UEPS Technologies Inc. looms.

The South African Social Security Agency, which oversees the monthly payment system, took the first step toward appointing a new distributor at the session in Pretoria on Jan. 13. It’s likely to take several more months to choose a winner, which will then have to put the necessary payment systems in place. The South African Post Office said it plans to bid.

“The tender briefing was about a request for information,” Kgomotso Diseko, a spokesman for the agency, said by by phone. “Some of the content we are just finalizing and then we will issue a statement. We are not ready yet” to select a bidder.

While the Constitutional Court ruled in November 2013 that the process of awarding the contract to Net 1, which expires at the end of March, was flawed and the tender should be issued afresh, the process was delayed by legal wrangling. The welfare system has helped bolster support for the ruling African National Congress and interrupting the payment of the grants — the only form of income for many poor families — could spark protests and wouldn’t be politically palatable.

Sassa has said it won’t be ready to take over the distribution itself.

Barclays Africa Group Ltd. declined to comment on whether it was bidding for the contract, while Standard Bank Group Ltd., Nedbank Group Ltd. and FirstRand Ltd.’s First National Bank, the country’s other biggest lenders, didn’t immediately respond to questions. The Post Office said it’s best-placed to distribute grants.

“We have the largest footprint by far and the reach in rural areas,” said Mark Barnes, the Post Office’s chief executive officer, who attended the Jan 13 briefing. “There will be a transition period for a new service provider to take over. I think July or August would be a realistic timeline. It could even be awarded to multiple service providers, but it should include the Post Office.”

Bathabile Dlamini

Net 1 Chief Executive Officer Serge Belamant wasn’t available to comment and didn’t immediately respond to e-mailed questions. Lumka Oliphant, a spokeswoman for Social Development Minister Bathabile Dlamini, didn’t answer her mobile phone. If need be, the Net 1 contract will be extended, the Social Development Department said in December.

The Democratic Alliance, the main opposition party, said Dlamini had intentionally stalled the bid process and that the livelihood of some of the country’s poorest people was being placed at risk.

“There is still no clarity as to who will perform this crucial task,” Lindy Wilson, the DA’s shadow deputy minister for social development, said in an e-mailed statement. The minister “should stop the pretence, come clean and admit that her department and the South African Social Security Agency have already renewed their invalid multi-billion rand contract with Net 1.”