- The RAF has reported significant progress in keeping its house in order.
- For the first time in decades, the entity claimed that it has reported a R3.2 billion surplus for the period ended on 31 March 2021.
- The company has also increased its investment income from R62 million to R157 million.
Transport Minister Fikile Mbalula is optimistic they are on the right path to turn the troubled Road Accident Fund (RAF) into a sustainable and equitable road accident scheme.
For years, the RAF has struggled with financial woes, but during a media briefing on Monday, Mbalula said that the turnaround strategy has been yielding results.
Mbalula said the RAF had reduced administrative costs of more than R7 billion during the 2020/2021 financial year for the first time in decades.
The state-owned company has been reporting consecutive annual deficits since 1981, the same year it was declared technically insolvent.
Mbalula said the entity operated on a financially unsustainable model for decades, becoming the government's contingent liability.
TODAY: ANNOUNCING THE REDUCTION OF RAF LIABILITY Together with the RAF board led by the Chairperson, Ms Msibi and RAF Executive led by its CEO, Mr Collins Letsoalo we announced measures taken to reduce the liability of RAF since 2019. pic.twitter.com/eVHOPX5E3c— |Mr Fix (@MbalulaFikile) June 7, 2021
When the Road Accident Fund Act of 1996 came into effect on 9 May 1997, the annual deficit had grown to R886 million.
In 2005, the annual deficit had risen to R1.2 billion.
"This astronomical increase in the annual deficit continued until the historic R3.2 billion surplus reported for the period ended on 31 March 2021. The RAF has, for the first time in many years, posted a surplus of R3.2 billion."
Mbalula said this was a dramatic shift from an R5.2 billion deficit the previous year.
"Investment income has increased from R62 million to R157 million. Finance costs have decreased by 62%, year-on-year, from R263 million to R90 million. Writs of execution have reduced by more than 50%, through a legal strategy and stratification of the debt book.
"The short-term liability has reduced by R2.2 billion, from R17 billion to R14.8 billion. Current assets have increased, including cash position, by more than R4 billion," Mbalula added.
The RAF collects R43 billion a year through the fuel levy, with only R26 billion of its annual revenue spent on actual compensation.
"About R17 billion is spent on administrative costs annually. Of this, R10.6 billion goes to legal fees. More than R2 billion is spent on medical costs.
"The situation is further exacerbated by a number of fraudulent claims the RAF has to contend with. The RAF model was centred on litigation, with 99% of the claims settled just before trial. The legal costs had been growing exponentially over the years from R800 million in 2008 to R10.6 billion in 2019," Mbalula said.
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