An academic paper published in 2018 alleged that entrepreneur Serge Belamant was involved in government corruption in South Africa. However, this case has become a subject of study in academic settings that focus on corporate business strategies, allowing students to learn about the concepts like post-truth, disinformation and misinformation.
Post-truth is a condition in which facts are less important than emotional appeal in shaping public opinion. Disinformation and misinformation are key components of a post-truth situation. The term “post-truth” was coined around 2010, but it didn’t enter mainstream use until 2016.
Disinformation is factually accurate information used to create misperception. It’s often used to manipulate public opinion through social media. Disinformation typically has a political or financial motive. Misinformation is factually incorrect, although it may be used for the same purpose as misinformation. People who distribute misinformation often don’t recognize it as such.
Serge Belamant was searching for new business opportunities in 2018 when he came across an online article about him and Cash Paymaster Services (CPS), one of his former companies. This article was a summary of an academic paper written by a professor at a South African university that alleged Belamant had been involved in state capture in 2012. This form of corruption involves the attempt of private individuals and companies to influence the passage of new laws by bribing public officials. It’s distinct from administrative corruption, which seeks to influence the implementation of existing laws.
The basis of the allegation was that CPS had tried to illicitly manipulate the South African government’s tender process. These allegations seemed to be the same accusations that one of CPS’s competitors had made in 2012, which South African courts and US agencies had already investigated and found to be without merit. Belamant was also unhappy about the fact that the author of the paper had failed to contact him, which would have provided an opportunity to point out that the South African government had awarded the tender to CPS because its technology was superior to that of all other bidders. A Professor friend at another university informed Belamant that he may have been a victim of disinformation during a period of post-truth.
Belamant founded Net1 Universal Electronic Payment System (UEPS) Technologies in 1989, based on technology he had patented for a fund transfer system. He was unsuccessful in selling this technology to South African banks, but he was able to acquire CPS from the First National Bank of South Africa. CPS was already paying social grants to 1.2 million people through a network of pay points, which Belamant recognized as an opportunity to apply Net1’s UEPS technology towards modernizing grant payments in South Africa.
Social Grant System
The implementation of a social grants system was one of the first important acts of the African National Congress (ANC) when it took power after the end of apartheid in South Africa in 1994. Most South Africans supported social grants and the system expanded dramatically during the late 1990s. Each of the nine provinces in South Africa distributed their own grants through private firms, which paid the grants in cash or through direct deposit into the recipient’s bank account. South African banks had been trying to provide banking services to rural and poor populations for years, although these efforts were largely unsuccessful due to a lack of the required infrastructure in much of South Africa. Belamant recalls that Net1 was able to solve these problems because it was “a closed loop system that focused on the payment of social grants at pay points in semi-rural, rural, and the deep rural areas of South Africa.”
Social Grant Tender
The South African government put its social grants payment system out to tender with a request for proposal (RFP) in 2012, which would be worth about $1 billion to the winning bidder over a five year period. Candidates were required to submit bids for each province separately, although they could bid on as many provinces as they wanted. After the first round of bidding, the government issued a bidder’s notice that required the payment system to verify the cardholder’s identity biometrically before issuing the grant payment. CPS eventually won the tender for all nine provinces since it was the only bidder whose payment system had this capability.
AllPay, one of the losing bidders, issued a challenge to the tender award in the High Court. The main allegation was that the government had issued the bidder’s notice specifically for the purpose of ensuring that CPS won the bid. The High Court ruled in August 2012 that the tender process was invalid but not illegal, although it declined to set the award aside due to the effect of suspending grant payments on the beneficiaries.
Both CPS and AllPay appealed the High Court’s ruling to the Supreme Court of Appeal, which ruled in August 2012 that the tender process had no legal breaches despite its procedural flaws. It also criticized AllPay for implying malfeasance through suggestion and innuendo without making a direct accusation. In particular, the Supreme Court of Appeal questioned AllPay’s failure to use a key recording, its only evidence of any possible wrong doing, in the original case that would later be the basis for the academic paper alleging state capture on the part of CPS.
AllPay challenged the Supreme Court of Appeal’s ruling in 2013 before the Constitutional Court, the highest court in South Africa. It essentially argued that Net1 and CPS exploited their positions as the sole provider of social grant payments in South Africa by selling financial products to the beneficiaries. Belamant responded by saying, “It is abundantly clear in the CPS request for tender response that CPS and other Net1 subsidiaries would provide financial services and products to beneficiaries at costs that are better than market prices.”, the basis for financial inclusion. The Constitutional Court ruled in November 2013 that the tender was invalid but not illegal, and that a new tender should be awarded ASAP.
The South African government issued a new tender in 2014, while CPS continued to process the social grant payments. Belamant decided not to submit a new bid, and no other bidders were successful. It must be noted that AllPay, the previous unsuccessful bidder did not submit a tender response either. The government decided it would take over payment processing in April 2017, but extended CPS’s contract to October 2018.
Meanwhile, Allan Gray, an institutional investor who owned about 16 percent of Net1, wished to call for a shareholders’ meeting in March 2017 in response to strong pressure from social media. As a result, the Net1 board replaced Belamant as chairman, although he remained Net1’s CEO. In response, Belamant resigned from Net1 in May 2017.