The SA Post Office: how the chickens came home to roost

The South African Post Office (Sapo) was placed under provisional liquidation in February after a landlord took it to court over unpaid rent. Sapo's most recent financial statements reveal that it owes creditors more than R4.4bn. And its debts exceed its assets by more than R4bn. That means it is technically insolvent. (Although Sapo has since paid this particular company and has indicated that it will ask for the liquidation order to be lifted, there are many other creditors).

Following the court order, the Democratic Alliance (DA) said the Post Office was “a bottomless pit" and liquidation might be the final straw for “one of the most mismanaged entities within the communications department".

The Communications Minister, Mondli Gungubele, said in a statement that the provisional liquidation was a “serious concern” and that he expected the board and management to provide him with the steps they intended to take to “address the issue" and “resolve the situation promptly".

Gungubele added: “Sapo is a crucial government service platform which caters to millions of citizens and cannot afford to cease its operations. The department and Sapo must work diligently to ensure that the Post Office transforms into an independent and profitable business entity for the benefit of citizens.

“The minister assures the public that all necessary steps will be taken to ensure continuous provision of social services, timely grant payments, efficient workforce, and harmonious negotiations with Sapo's creditors towards favourable outcomes.

(The minister's words would make you want to break out in hysterical laughter if the cloud-cuckoo-landness of it all were not so deeply disturbing. The correct response is probably to assume the foetal position.)

Stabilising the entity

Sapo has been bleeding taxpayer money since 2013. In 2016, in an act of patriotic duty, Mark Barnes took on the job of CEO. Three years later, the entity seemed to be turning a corner, and the numbers support that.

In 2019 Sapo was still making a loss. It was R1.1bn that year, up from R1bn in 2018. But it had also pushed up revenue from R4.54bn to R5.32bn. Even more critically, it had increased its equity (the difference between assets and liabilities) from R3.41bn to R5.19bn. Then Barnes left. And Covid hit.

By 2020, Sapo's equity had fallen to -R14m, and from then on it was back to Skidsville on every front: revenue crashed, debt ballooned, and the number of strategic targets not met shot up. In 2022, Sapo met only 18% of its strategic targets, while in 2019, the figure had been 58% (also not great, but it was an entity coming off life support).

Barnes insisted the Post Office's financial viability lay in diversifying, and said it was key to keep  Postbank in the Post Office; the old core business of sending and receiving letters and parcels was not enough.

The government, however, wanted to unbundle  Postbank and set up a standalone state-owned bank (with its own board, of course). So Barnes threw in the towel. And the planned unbundling of Postbank went ahead under the not-so-stellar leadership of the then minister, Stella Ndabeni-Abrahams. 

Barnes’s vision, then...

A year after he left, Barnes explained to me the vision he had had to turn Sapo into a profitable and independent business. 

“The Post Office is an irreplaceable piece of infrastructure that reaches every corner of the country. I saw how it could be expanded to offer a whole range of services — a counter for mail, one for e-packages, another for paying licences ... and we were well on our way to fulfilling that vision.

“When we finally, after that long fight, secured the Sassa contract to pay out grants, we started to gain momentum. We began making money that we could reinvest in the banking side of the Post Office because that was ultimately how we wanted to make the Post Office a completely new entity that could function without government subsidies."

The new business strategy, now...

Now, with the spectre of liquidation looming, Gungubele talks about a new business strategy that will make Sapo profitable again. But he says it will need “the opportunity", time and the “necessary support" (read, bailouts from the National Treasury).

And lest we fall into the government “challenge" narrative (bolstered by the inevitable claim that Covid is solely to blame for the atrocious state of the Post Office), consider two basic pieces of statistical information. According to the Financial Mail, in 2021, Sapo delivered only 68% of the mail that went through its system; 32% of the items entrusted to the Post Office never reached their destination. In that same year, the FM pointed out, “there were more than 81,000 complaints to its call centre — roughly 400 for every working day in the year". 

However, Gungubele says there is a way forward to financial health, and in March the Department of Communications and Digital Technologies gazetted its intention to table the South African Post Office Amendment Bill in the National Assembly. If it is enacted into law, Sapo's core mandate will change to include diversified and expanded services such as e-commerce and courier deliveries. 

The only problem is that it is probably too little, too late, with private operators having moved aggressively into this space. In addition, the South African Postbank Limited Amendment Bill become law in February, which means the unbundling of the Postbank from the Post Office is now complete, and we have a state-controlled bank (where,  incidentally, irregular expenditure increased by R118m over the last financial year).

Barnes said it four years ago, and he said it again recently: “Around the world, the post offices that are surviving all offer financial services within an integrated citizen model ... I can't run a post office if it hasn't got a bank as an integral offering and access to the national payment system."

Mark Barnes’s proposal, now ...

Barnes has not let go of his dream of saving the Post Office. In September 2021, he tabled a proposal for a partnership with the government, saying in his letter to the minister: “I remain convinced that the post office is a strategic asset of national importance, in which the government should retain a significant shareholding. I do, however, think the only way to achieve both the commercial and developmental mandates with which the post office is charged is through a public-private partnership. "

In essence, Barnes's plan would see him leading a private consortium to buy 60% of the Post Office, with the government retaining a shareholding of between 25% and 40% to allow the business to function as an organ of the state. The government dismissed his offer. 

Barnes recently told Bruce Whitfield of The Money Show on Radio 702 and CapeTalk that his offer was still on the table but is worth R2.4bn less because if it had been accepted then, the most recent government bailout would not have been needed.

The government seems to be intent on going it alone and supporting Sapo's “Post Office of Tomorrow" strategy, which includes slashing jobs and will most certainly entail more bailout money.

Barnes says: “It is now beyond argument that a new set of solutions needs to be found to save our ailing state-owned enterprise matrix. Furthermore, it should be made clear (and public) that there is a will, energy and capacity (which borders on downright determined patriotism and a desire to succeed) within the mix that is us, the SA people."

When it comes to the Post Office, however, the government seems intent on brazening it out without any input from the private sector.