South Africa Sued to Protect Recipients of $9.7 Billion in Welfare

JOHANNESBURG, Capital Markets in Africa: South Africa’s government is facing a counter legal challenge in a dispute with Net 1 UEPS Technologies Inc. with a rights group demanding that it protect welfare recipients from companies that are allegedly selling the nation’s poorest people goods and services they don’t need and deducting payments from grants paid to them by the state.

Black Sash Trust, a human rights activist group, on Wednesday applied to the High Court in Pretoria to intervene in cases between the state and Net 1 and its associates. Net 1 has a contract to distribute welfare grants on behalf of the government, while companies in which it has shareholdings in, and board members in common, sell grant recipients services ranging from loans to mobile phone air time.

“The state is under a constitutional and legal obligation to protect the beneficiaries of social grants from exploitation,” Black Sash, which is represented by the Johannesburg-based Centre for Applied Legal Studies, said in court papers. It should be ordered to “make regulations under the Social Assistance Act that adequately protects social grants from exploitation in a manner that prevents grant beneficiaries receiving full benefit from them,” the group said.

The dispute between Johannesburg-based Net 1 and the government comes after regulations were amended in May to stop deductions by insurance companies from child support grants for funeral insurance policies for children, as well as for other goods and services. Of South Africa’s 53.9 million people, 16.9 million receive welfare payments. The state paid 129 billion rand ($9.7 billion) in grants in the last financial year.

Net 1 Challenge
Welfare recipients are being taken advantage of because they don’t always understand what they are signing up for, according to the South African Social Security Agency. Net 1 says that they should be allowed to spend their money as they choose. Black Sash contends that the state must protect those on welfare from depletion of their grants.

Net 1 and its associates “seek to be able to continue to have de facto unrestricted access to the ‘Sassa bank accounts’ of social grant beneficiaries to whom they market and provide products and services,” Black Sash said.

Net 1 last month said that the amended regulations breach South Africa’s constitution.

“Beneficiaries have been able to enjoy the security and convenience of electronic banking, as well as access to credit facilities, which were previously inaccessible to them under the cash-based payment system,” said Net 1 in court documents. The amendments are “an unjustifiable and disproportionate intrusion on the individual autonomy of beneficiaries to regulate their own affairs,” it said.

Source: Bloomberg Business News