From the cockpit, the pilot looked over his shoulder. “Have any of you flown on a PC-12 before?” We had not. The chartered plane was one of four on the tarmac at Lanseria on Thursday ready to fly 20 journalists to Kokstad. Why Kokstad? It was our rep from PR firm Burson-Marsteller’s first day on the job, so after the plane took off I looked out the window, down at the suburbs and townships, and opened the press pack.
“Net1: Welcome to Our World,” it began.
Net1 UEPS Technologies has become infamous as an archetype of corporate vice. Through its role in delivering social grants and marketing financial services to the poor, the Nasdaq-listed company has been accused of exploiting taxpayers and the indigent to line the pockets of shareholders and wealthy executives. It hired private planes to show us its side of the story.
Net1 owns Cash Paymaster Services (CPS). It has a long history of delivering social grants and in 2012 won a South African Social Security Agency (Sassa) tender to distribute grants across the country. Monthly, it pays 22-million grants to 10.6-million recipients. It has become a key cog in the machinery of South Africa’s survival. If the grant system is compromised or removed, the consequences for poverty and unrest would be unimaginable.
Those consequences were almost realised recently. The Constitutional Court had ruled the 2012 tender invalid and ordered government to take over grant payments by April. Despite having years to work on insourcing payments, Social Development Minister Bathabile Dlamini made no attempt to build a new system. In fact, she only supported Net1 in continuing to pay recipients. Millions of livelihoods were at risk amid fears that grants wouldn’t be paid in May. At the last minute the Constitutional Court let Dlamini have her way and allowed the invalid Net1 contract to continue for another year.
It’s profitable work. Sassa pays CPS R16.44 per recipient and last week CPS announced it made a pre-tax profit of R1.1-billion, R705-million after tax off the tender over the last five years. Other Net1 subsidiaries like MoneyLine, EasyPay Everywhere, Manje Mobile and SmartLife market products to the poor and the company has been repeatedly accused of using grant recipients’ details to sell financial services.
CPS employees, with a convoy of hired Ford Rangers, watched the PC-12 land on a grass airstrip in Kokstad, ready to take us through the area’s endless roadworks to the Ingeli Forest Resort. Oprah Winfrey once visited and there was a framed note she wrote thanking staff for their service. The journalists relaxed on a deck overlooking a logging plantation and, as usual, started drinking.
Net1 founder and CEO Serge Belamant was replaced last week after the company’s second largest shareholder, Allan Gray, pressured Net1 to make changes. Over the years Belamant has been abrasive and arrogant. During the recent worry over whether grants would be paid in May, he appeared to enjoy playing the villain, spitting callous greed in the face of poverty. If CPS didn’t deliver grants, he said, as debate raged over whether the South African Post Office (SAPO) could take over, government could send “pigeons to fly around”.
Belamant left Net1 with a payout few South Africans, let alone someone who receives a monthly child support grant of R380, could even fathom. With share options and a payment for recognition of service, he pocketed around R263-million. The bulk of it came from his shares that the company bought out, at a reported 14% higher than market value. But Belamant didn’t really leave. Net1 kept him on as a consultant, to be paid R651,000 a month for two years. Allan Gray said it was “extravagant” and “unjustified”.
Back on the deck, we thought of questions to ask the new CEO, while sipping drinks paid for by the corporate giant at a resort good enough for Oprah. How can Net1 defend itself after turning such a profit and giving Belamant a platinum handshake? What about the deductions Net1’s subsidiaries are said to take from grant recipients’ accounts, benefiting from the company’s access to poor people’s details? The new CEO has been a key leader in the company, so how is this a change? And, someone actually interested in Net1’s future threw in, how will Net1 make a profit after government takes over the delivery of social grants?
“These are the questions we have to ask,” said one journo. “We have to put it to them.”
Herman Kotzé was promoted from Net1 chief financial officer (CFO) to CEO. On Thursday evening, his first day in charge, he sat next to operations boss Nanda Pillay in a dark corner of the Ingeli Resort’s conference room.
Kotzé looks like a typical, balding, white father in his late 50s or early 60s. Wearing dress shoes and a business shirt tucked into jeans, he stood up for his first press briefing as CEO, behind a lectern branded with Net1’s logo (graphic design students could use it as an example of aesthetic failure). “I do feel a bit like an oversized lamb being fed to the slaughter.”
Pillay said Kotze’s address was prepared over a 15-minute conversation the night before. It seemed either unlikely or reckless, considering an international PR firm was involved and Net1 chartered four planes to get us there.
He addressed most of the questions before we could ask. Kotze said Net1 had received a lot of negative media attention but the issues were often misunderstood or misconstrued. We were there, he said, so the company can start a new chapter and begin to communicate with the media and the public. “You have a boss and sometimes you don’t always agree,” he said on whether he was implicated in Belamant’s role in creating Net1’s public image, which is below junk status. “But I think it’s wrong to point fingers.”
Profit from delivering grants was far below what it originally planned and, in fact, Net1 saved the government R2-billion a year by weeding out recipients undeservedly receiving multiple grants. Belamant’s exit package was “the elephant in the room”, he said. A deliberations committee decided that because he founded the company, put in 30 years of service and would have restraints of trade and intellectual property limitations going forward, he deserved the payout. He denied Belamant was paid an inflated 14% for his shares, claiming the figure was set by the share price on the day of the committee’s deliberations.
The Guptas. Of course they were going to come up. Over drinks, Kotzé and Pillay discussed their brazen looting. Daily Maverick had just released the #GuptaLeaks and everyone had an opinion. The irony that many people view Net1 in a similarly negative light seemed lost on the executives, although Kotzé noted, from experience, how the media reports on the country’s villains.
Pillay and Kotzé believe Net1’s work is misunderstood and not recognised. Pillay’s workday started at 05:20 on Thursday. He got a call to say a cash-in-transit van delivering millions meant for grant recipients in Ulundi had been robbed on the road, with thieves using explosives to get the cash. Pillay and CPS had to find a way to deliver the money. Grants are paid on the first day of the month and recipients who travel to pay points may not have money to return home. They couldn’t be left stranded. It would take hours for another vehicle to travel from Durban, so cash was loaded onto a plane and flown out to ensure Ulundi residents got paid.
“It’s not an easy job,” said Pillay. “It’s not easy. It’s not easy.” Throughout the social grants crisis and criticism of Net1 and CPS, the social element had been forgotten, he said – that 22-million grants are provided to the most marginalised citizens and the company is successfully delivering despite the challenges.
On Friday morning we drove to Mbizana, Eastern Cape, one of the poorest districts in the country, to visit one of 88 CPS paypoints in the area. Sassa and the department of social development has to ensure government takes over the delivery of social grants, most likely through the Post Office and Post Bank. It’s a serious risk for Net1; Kotzé called it “a risk factor”. Net1 believes CPS should still have a major role in delivering grants in rural areas, which account for around four million grant recipients. Was that why we’d travelled so far, to show CPS’s capabilities in the rural areas and help it win another Sassa contract?
Kotzé stood on a mound inside the Mbizana paypoint. “That’s where our strength lies,” he said. He suggested that the Post Office does not have the same systems in place to deliver grants close to where people live, which is important so recipients don’t have to travel too far. He said Net1 can’t push government for a tender to cover rural areas but he hopes the company takes a strong role.
“The real people” we’d been taken to see queued to withdraw cash from a bakkie with two ATMs attached. Most were old and frail. A few young women stood in line. Half a dozen Fidelity guards with R5s stood around the fenced paypoint. Two Sassa officials helped recipients with queries as the ATMs delivered cash every 15 seconds. It was efficient.
Photo by Net1
Come pay day, a market springs up outside the paypoint. Clothes, chickens, vegetables, hardware, soap, snacks – you can get your grant and immediately go shopping. There are also financial products on offer, including from Net1 subsidiaries. You can buy airtime, sign up for a funeral policy, get a contract with a building company, and take out a loan.
“It’s a big problem. Everyone here is crying about it,” said Mbizana resident Trevor Khune on his way home from the paypoint. Hundreds of rand are deducted from grants each month for airtime, building contracts, and electricity, he said. “Although you know you don’t have [airtime or electricity], when you come here they say you owe the companies, for nothing.” CPS sends complainants querying deductions to the companies responsible – Khune mentioned Eskom, MTN and housing companies Amos and Build it. The companies then claim grantees used their products or have signed an agreement. Every month, despite complaints and requests to cancel the debit orders, the deductions continued, he said.
Human rights organisation Black Sash has launched a campaign to protect beneficiaries from illegal deductions. Net1, which through CPS has access to grant recipients’ personal details, is accused of using information collected in the social grant process to market other financial services to recipients. That would give the company enormous access to profit off millions of poor South Africans and an unfair advantage over competitors.
Former Sassa boss Zane Dangor in an affidavit in April said there is “emerging evidence that CPS was involved in immoral and/or illegal deductions from the accounts of grant recipients”. The Constitutional Court ruled CPS must provide safeguards to ensure personal data is only used for the payment of grants and there could be no invitation to “opt in” to having information shared for marketing other products.
Kotzé repeatedly mentioned KPMG’s audit of Net1, released in April, to defend the company. “I can categorically tell you that there is no, and can be no, sharing of information between ourselves or third parties from this database.” The KPMG audit said there is no evidence that grant recipients are asked to opt in to receive marketing from Net1 companies.
Sygnia CEO and Daily Maverick columnist Magda Wierzycka said the audit failed to clear Net1. “The fact that, by Net1’s own admission, their only clients are grant recipients seems to imply that someone is marketing something to somebody, opt in or out notwithstanding.”
Kotzé smiled as I mentioned other companies accused of making illegal debits from grants. There are 1,500 companies that can make debits through the national payment system from grant recipients, he said. Like any debit order, they require you to sign an agreement with terms and conditions. “If you’re anything like me, I’ve never really read these,” he said. “Therein lies the problem.” KPMG found debit transactions from external companies occur more than twice as often as Net1-related debits, but as Wierzycka said, that only proves “there are many more sharks in those waters than just Net1”.
Net1’s “new chapter” comes with a new vision. The financial services industry has pushed financial inclusion for the poor but in the process ignored financial literacy, said Kotzé. Asked whether Net1 profited off financial illiteracy, he said, “I think the whole industry has profited off financial illiteracy.” He called it an “endemic problem”.
“I think all of us, as individuals, have profited out of financial illiteracy and some are trying harder than others to address the problem.”
Photo by NET1
Net1 has printed four million books in multiple languages titled Budget & Save Wisely: Learn the secrets towards financial freedom. It has tips on budgeting, borrowing, repaying debts, consumer rights and protection. Sections of the mining industry went through a similar financial education drive after Marikana after realising that indebtedness contributes to strikes. But unless the fundamentals change, the efforts are only cosmetic.
Net1 will appoint Neville Melville, former banking services ombudsman, as the company’s ombudsman to resolve client complaints. It also plans to make its customer complaint line completely toll free, finally.
As grant recipients continued to line up in Mbizana, Kotzé said consumers need to learn that debit orders can be disputed and must be reversed, but when people are sent to companies, businesses often don’t want to comply. “You’re sending them to the very same people who don’t want them to cancel that debit order.
“At the heart of it, you’ve obviously got to get the people who process the debit orders,” he said.
The big companies involved, including Net1, need to work on training staff to handle complaints, on improving query resolutions, and have call centres that you can actually reach and solve problems. Sassa believes the issue could be solved by banning debit orders from the Grindrod bank accounts grant recipients’ use. Net1 claims this would exclude millions of people from the banking system, forcing them to use cash for all their transactions and leaving them vulnerable to unregulated loan sharks.
Isn’t Net1 a loan shark? On Friday, around 100 people queued outside the company’s Mbizana offices, with more inside withdrawing their grants (grant recipients can withdraw money from CPS ATMs for free or at any other ATM for a fee), applying for microloans and funeral policies or opening an EasyPay Everywhere bank account. It was a one-stop-shop of depression, like a home affairs for the poor and financially desperate.
Net1’s Pillay said offering financial services in the same venue where people can withdraw their grant payments without being charged fees isn’t unethical. It’s like any bank offering multiple services. Net1’s MoneyLine provides short-term microloans at high interest rates, but the company is proud to provide the service to people it says might otherwise be unbanked or have to go to loan sharks. “Go, ask them why they’re here,” said Pillay. It was hardly a poll, but one man who didn’t want to be named said large banks don’t want to give loans to people on grants and Net1’s rates were reasonable.
Back in the Ford Rangers, there was a lingering question. Net1 claims its financial services companies aren’t illegally benefiting from the Sassa contract, although it’s hard not to believe it’s built an empire through delivering grants and using its privileged position to market financial services.
But what about the R705-million net profit Net1 made from delivering grants on a tender the courts said never should have been awarded, at least in the manner it was? Kotzé sighed and said he understood the criticism. Net1 wasn’t found to be at fault in the tender process; that was Sassa’s problem. It would be “unfair”, he said, to say a private company shouldn’t make a profit after it entered into an agreement with a set price.
Corruption Watch and others have called for Net1 to repay some of its profits and plan to go to court to recoup the cash. Declaring the contract invalid, the Constitutional Court said the company could not benefit from the unlawful deal, but it didn’t mention repaying profits. “We cannot predict whether any such litigation will be instituted, or if it is, whether it would be successful,” said a recent Net1 statement.
Net1 delivers grants efficiently, but its work, particularly on delivering financial services to recipients, requires much, much more scrutiny. Some, like Wierzycka and the investigative journalism unit amaBhungane, have consistently applied pressure, but often details of the system that supports over a third of South Africans, the ANC’s most important policy, have been neglected.
“The beauty of a crisis … a lot of things get said,” claimed Kotzé. “I think this whole six-month period has been quite transformational.”
The grants crisis might have been transformational for Net1’s attempts to clean up its public image, but in reality, little has changed. Flying back to Joburg, I realised, those mandated to ensure grants that are delivered responsibly, lawfully, are failing the country. Minister Bathabile Dlamini has ultimate oversight but has shown a slavish commitment to Net1 and has resisted all attempts to insource payments, as ordered by the courts.
The reality of the grant system is both depressing, in understanding how a large portion of the country is so impoverished that grants are their only option, and impressive, with government at least providing something of a safety net for those at risk.
Kotzé began and finished the trip by asking for Net1 to be given the benefit of the doubt. Considering the allegations against his company, it was impossible. Net1 operates within a system that has not held it to account, nor appears to want to. Until Sassa, Parliament’s Standing Committee on Public Accounts and, especially, the minister take their responsibilities seriously, Net1 will remain a corporate devil.
Flying journalists around the country won’t change that. DM
Photo: They queued to withdraw cash from a bakkie with two ATMs attached. Most were old and frail. A few young women stood in line. Half a dozen Fidelity guards with R5s stood around the fenced paypoint. (Photo by NET1)
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