Sifiso Skenjana: Sweet to sour at Tongaat (and why 'financial irregularities' impact us all)

accreditation
Sifiso Skenjana
Sifiso Skenjana

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

We live in a world where facts and fiction get blurred
In times of uncertainty you need journalism you can trust. For only R75 per month, you have access to a world of in-depth analyses, investigative journalism, top opinions and a range of features. Journalism strengthens democracy. Invest in the future today.
Subscribe to News24
Rand - Dollar
14.34
+0.9%
Rand - Pound
19.94
+0.7%
Rand - Euro
17.01
+1.0%
Rand - Aus dollar
10.59
+0.6%
Rand - Yen
0.13
+0.7%
Gold
1,811.46
-0.1%
Silver
25.54
+0.5%
Palladium
2,654.00
-1.2%
Platinum
1,054.50
-0.5%
Brent Crude
72.89
-3.3%
Top 40
62,543
-0.3%
All Share
68,706
-0.2%
Resource 10
71,203
+1.0%
Industrial 25
86,170
-1.8%
Financial 15
13,129
+1.7%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Voting Booth
Should pension fund members be allowed to access their savings before retirement?
Please select an option Oops! Something went wrong, please try again later.
Results
Yes, it's their money to do with as they please.
32% - 67 votes
No, more people will end up without enough savings in retirement.
37% - 76 votes
Depends on how big the withdrawal limits will be.
31% - 64 votes
Vote