The recent admission by Tongaat that it may need to restate its 2018 financials following a probe resulted in a 42% share drop since the discovery in April and a subsequent
announcement by the board electing for a voluntary suspension of the company’s
listing in the interest of shareholders. The firm has since stated that a
rectification of the inflated numbers could result in a reduction their balance
sheet by equity by between R3.5bn and R4.5bn, Reuters reported.
The country may be feeling an uncomfortable Steinhoff-like sense of sense of déjà vu, having witnessed Tongaat’s share price plummet from trading at roughly R169 per share at the start of the 2015 year to a mere R13.21 as of the June 10, 2019. This colossal loss of shareholder value ought to energise regulators to ask the right questions about the extent to which a continued occurrence of these "irregularities" will affect the savings rates and dependency ratios.
Havoc for savings, investments
According to Reserve Bank data, South Africa’s gross savings rate was recorded at 14% and the household savings rate was amongst the worst of the Group of 20 Countries (G20), with only 1.2% of household disposable income going towards savings, according to the December SARB Quarterly Bulletin released in March this year.
We also know that last year, the Government Employees Pension Fund (GEPF), one of the largest pension funds on the continent, had to write of a reported R7.4bn, and R995m year before that. The 2018 Old Mutual Savings and Investment Monitor reported that 57% of those with children were not in a position to save for their children’s education. And among black people, the most prominent savings and investment products used were funeral policies and informal savings like stokvels.
Blows to retirement
Whichever way you slice the pie, the picture and prospects from a savings point of view in South Africa is not looking rosy. And while the fraudulent activity taking place at firms like VBS, Steinhoff, Tongaat, among others, are not the only drivers for the numbers we see, they sure have created a lot of havoc and damage to national savings and attitudes towards savings and investment.
On the other hand, the Old Mutual report also highlights the growing trend of family and state dependency among the young as well as the old. The report found that 38% of parents depend on their children to take care of them, 32% depend on government and a staggering 59% of earning individuals expect to have to take care of their parents or extended family.
These numbers are the way they are because people have no prospects of retiring comfortably. It is often estimated that at retirement, one would need an income of about 70% (income replacement ratio) in order to live comfortably at retirement.
Instead, Alexander Forbes last year reported that only 5.2% of people managed to retire with the same standard of living, with more than half of those retiring only managing to earn 20% of what they used to earn.
The erosion of household savings and subsequent negative impact due to the criminality shown by companies like Tongaat and Steinhoff cannot go unattended for much longer and the regulatory institutions that look after the reporting frameworks and standards ought to carry their weight to ensure that the ordinary citizens of the economy are not left wanting, on the back of irresponsible choices of few, who hold office in these corporates.
Sifiso Skenjana is founder and financial economist at AFRA Consultants. He specialises in economic policy research, investment strategy and advisory services. He is currently pursuing his PhD. Views expressed are his own.
Follow him on Twitter: @sifiso_skenjana