Sapo's Loss-Making Sassa Payouts Jeopardize Services for Over 5 Million Beneficiaries

In a significant development that impacts millions across South Africa, the future of grant payments for over 5 million South African Social Security Agency (Sassa) recipients is in jeopardy as the South African Post Office (Sapo) considers discontinuing the service. The entity's business rescue practitioners (BRPs), Anoosh Rooplal and Juanito Damons, have laid out a stark reality in their proposed business rescue plan, illuminating the financial sinkhole that Sassa payments have become for the struggling Sapo.

Sapo, which entered business rescue in July, faces a critical crossroad as Rooplal and Damons published their recovery blueprint last week, emphasizing the unsustainable nature of the Sassa payment service that is adding to the entity's financial struggles. The BRPs have disclosed a significant loss exceeding R200 million per annum, incurred by the Post Office through the Sassa payments—revealing an untenable financial burden that threatens the entirety of Sapo's operations.

With operational difficulties and beneficiaries increasingly choosing alternative payment providers, including private banks and retailers, Sapo's annual revenue from Sassa grants plummeted from R798 million in 2022 to a meager R318 million for 2023, with Sassa fee revenue sitting at around R48 million for the first six months of the fiscal year 2024. The consequence is starkly evident in customer numbers; while Sapo serviced 7.2 million grant recipients in March 2022, it witnessed a decline to 6 million a year later. By September 2023, the number had fallen further to 5,115,092 beneficiaries.

Adding to the fiscal distress is the stark increase in crime targeting Sapo branches. The 2019 initiation of Sassa payment services led to an uptick in violent crimes, including armed robberies, burglaries, and theft within Sapo premises, resulting in losses of over R400 million since then. This not only affected Sapo's financial health but inadvertently deterred customers from engaging in other services such as motor vehicle licences.

To curb these challenges, the BRPs have proposed a shift in strategy—directing the Sassa payment services to Postbank. They suggest the sale or migration of various Sapo branches to Postbank as a strategic solution to enable an expansion of Postbank's banking network to cover Sapo's existing clients. This would also grant Sapo the much-needed space to concentrate on its primary services, offering a glimmer of hope for the organization's financial rehabilitation.

However, the proposal follows on the heels of a recent issue where a payment system migration glitch at Postbank resulted in about 600,000 Sassa beneficiaries not receiving grants on time, with delays ranging from a few days to a couple of weeks. This incident casts a shadow on the proposed migration of services and raises legitimate concerns about the continuity of uninterrupted grant payments for marginalized South Africans.

Sapo's last profitable year was recorded as far back as 2004, with a decline in revenue commencing from 2006—underscoring the depth of financial woes it faces. The impending business rescue plan is pending submission and approval, with a vote by creditors scheduled for December 7.