Fifty shades of Gray in grants fiasco
NET1’S BIGGEST AND MOST PASSIVE INVESTOR Net1 trumpets loudly it has never been found guilty of a crime, but that doesn’t mean no red flags flutter above its business dealings, raising questions about sustainability of its business model.
The government, its ministers and agencies have endured heavy criticism over the social grants debacle, but its private partners in this fiasco should not escape scrutiny.
Cash Paymaster Services (CPS), its parent company, Net1 UEPS, and Net1 CEO and founder Serge Belamant are doing very well out of the relationship. Net1’s major shareholder Allan Gray says its engagement with the company over the grants distribution contract has been minimal.
This is surprising, as many commentators have alluded to corruption as one of the possible reasons Social Development Minister Bathabile Dlamini, the department and the South African Social Security Agency (Sassa) have failed to comply with the 2014 Constitutional Court (ConCourt) judgement ordering them to implement a new grants distribution system.
But if there is indication of corruption, then it is incumbent on investors to ask questions about CPS’s role.
Below are the red flags not be ignored.
Firstly, Net1’s 2016 annual report notes the US Department of Justice’s Sassa probe into possible violations of the Foreign Corrupt Practices Act is ongoing.
Secondly, while much is made of the 2014 ruling that Sassa’s conduct was the sole cause for the CPS contract being set aside, this does not exonerate CPS.
The ConCourt found that Sassa failed to objectively confirm the Black Economic Empowerment (BEE) credentials claimed by CPS and, as an amaBhungane investigation has shown, these BEE credentials appear to amount to “fronting”.
These troubling issues are among other worrying facts in relation to Net1’s rocky boat. It appears that Net1 will become yet another case study of asset manager failure.
Mike Davies (@Kigoda_Consult) is a director of responsible investment consultancy Kigoda Consulting.