Post-apocalyptic: should the Post Office be saved?

Back in 1792, two Dutchmen swung open the doors of the first postal service in South Africa. It was a low-key event: the post office operated from a pantry in the Castle of Good Hope and would be open for just one hour a day, from 9am. 

Over time South Africa’s postal service, like its global peers, was put through the wringer of the information revolution. What began in that Cape Town pantry all those years ago would be unrecognisable today,  in a world that has now lived through the telegraph, the facsimile, the telex, the internet, e-mail and now e-government.

It has meant a wholesale overhaul of the original postal business. Not that the government doesn’t see the value of such an operation today. Its reach, theoretically, opens a necessary service delivery channel for citizens in even the most remote of areas — even if, for the most part, it’s necessarily more digital than physical today. 

These opportunities, however, are lost to the South African Post Office (Sapo).  

So dire is its situation that one of the postal service’s landlords, struggling to wring her rent out of the state-owned company, successfully applied for its provisional liquidation in the Pretoria high court on February 9. 

The story behind that liquidation order is deeply revealing of the morass engulfing the company. It shows just how Sapo — far from providing a vital service that lubricates the economy — has provided precisely the opposite of its motto: “We deliver, whatever it takes.” 

In an affidavit for the liquidation application,  lawyer Naeema Gabru describes how, in April 2016, her her client, Bay City Trading 457, signed a three-year lease with Sapo to rent it premises in Mooinooi, in the North West.

It wasn’t much money — the Post Office had to pay just R18,900 a month. But, even then, it often skipped the rent payments. In 2019, Sapo asked to renew the lease for five years, but said because of “economic conditions” and its financial situation, it could afford to pay only R15,300 a month. 

Bay City Trading  accepted the offer, but even at the reduced rate there were “multiple times where the Post Office failed to adhere to payment of rentals”, she says.  

At one point, Sapo wrote back to Gabru, saying it had “reached a small problem with our liquidity”, but would pay when it could.  

By May 2022, they had had had enough. So  Bay City’s  lawyers, Cawood Attorneys, wrote to Sapo, saying it owed R278,368 and if it didn’t pay within 21 days, “we hold instructions to forthwith proceed with an application for your immediate liquidation”. 

It is clear, the lawyers say, that the company is “not able to pay its debt and is factually [or] commercially insolvent”. 

For a small business this sort of money is of consequence. But it’s baffling that the Post Office, which paid its directors and top brass R23.9m last year, can’t pay rent of R278,368.  

True to form, the Post Office has since paid Bay City Trading — which shows it could have paid all along, but it was just stalling.

In a press statement on April 13, the Post Office described the liquidation order as “unfortunate”, saying its shareholder, the government, “remains committed to the long-term viability of its business”.  

“It is not in the interest of any stakeholder — including creditors, and the country — for the South African Post Office to be liquidated. The organisation’s role in the delivery of services to the citizens of South Africa cannot be overemphasised,” it said.

Yet it’s even more unfortunate that small businesses are going bust because the Post Office is so inefficient and chaotic it can’t even pay its bills. What good is such an organisation to the country? 

Sapo CEO Nomkhita Mona now has until June 1 to convince the court not to make the liquidation final.  

But the signs are ominous: in its most recent financial year, to March 2022, it clocked up a R2.18bn loss, with its liabilities exceeding its assets by R4.08bn. It owes everyone money — R2.8bn to the Post Bank, R769m to the employees retirement fund, R928m to the South African Revenue Service and millions to landlords.

In short, it’s a hopelessly insolvent company, which raises questions about whether its directors are trading recklessly. 

So, is this a company that can be saved? Is this a company that should be saved? What would South Africa lose if the state-owned postal service were shut down?

Wasted opportunities 

This tale of woe wasn’t inevitable. The story of the Post Office is one of wasted opportunities and maladministration, and an organisation that stubbornly clung to its analogue DNA despite a fast-encroaching digital world. 

Its revenue has plunged, but the soaring fortunes of private courier services, which have stepped into the breach — think PostNet, DHL and UPS — illustrate that there is a market for these services. Yet in the past five years, the Post Office has accumulated losses of R8.4bn. 

At the heart of the issue lies this conundrum: why would a customer trust the Post Office to deliver a parcel when its own metrics show it successfully delivers mail only 68.3% of the time?  

This, as the Post Office admits in its 2022 annual report, is “substantially below” the regulated standard of 92%. It attributes this to “delays in mail processing, backlogs and carry-over accumulated during the hard lockdown period, together with financial challenges which resulted in the withdrawal of the delivery fleet, closure of branches and lack of tools of trade”. 

Customers couldn’t care less about these excuses. As it is, there were a mind-blowing 81,860 complaints at the Post Office call centre during the previous financial year, of which only 60% were resolved within a week.  

It’s not as if the Post Office hasn’t had its chances. In 2017, it was handed a lifeline, when it scored one of the most lucrative government contracts going: to pay 7.7-million social grants every month to older people, children, the disabled and, later, beneficiaries of the social relief of distress grant.  

This was meant to bring R1.9bn a year in revenue, according to Sapo’s annual report. But even this was a disaster: not only did it occasionally fail to pay grants in time, but reports surfaced in 2020 suggesting it was losing R360m a year on this contract.

“Older people in some parts of the Eastern Cape queue for hours outside post offices to receive their grants — many times in the heat without water or access to ablution,” says Athol Trollip, leader of ActionSA in the province.  

“These grant beneficiaries have to incur travelling costs to get to their nearest post offices just to learn there is no cash and they need to return another day,” he tells the FM. 

To make it worse, in rural areas grant beneficiaries are targeted by criminals at Post Office paypoints, as the company hasn’t paid to put in additional security there, says Trollip. 

This contract did not solve the Post Office’s financial woes; it sank further into the red. 

The quality of Sapo’s financial management led the auditor-general (AG) to point out several flaws and issue a “disclaimer” on its 2022 financial statements. 

“Effective and appropriate steps were not taken to prevent irregular expenditure amounting to R611.7m,” the AG said.

It also clocked up R242.6m in fruitless and wasteful expenditure, and no disciplinary steps were taken against officials responsible for that. 

Equally worrying was executives’ blasé attitude towards its financial statements. As the AG put it: “The accounting authority did not exercise adequate oversight on the financial statements ... we identified material misstatements.”

The gravity of these misstatements is evident in that, for every year going back to 2018, Sapo had to restate large chunks of its financial statements. 

In 2020, for instance, the Post Office said its assets amounted to R13.46bn — but in its 2022 financials it restated this figure downwards to R7.3bn, by almost half. It’s almost like a page from the playbooks of Tongaat Hulett and Steinhoff. 

This lack of attention to detail raises sharp questions about whether the Post Office has a future, despite its fighting talk about its “long-term viability”. 

It doesn’t help that its “turnaround strategy” remains murky. One of the few things we do know is that the Treasury has set aside another R2.4bn bailout for the Post Office so it can settle some of its debt. 

“The latest bailout is a little drop against a tsunami of debt,” says Dianne Kohler Barnard, DA MP and member of parliament's portfolio committee on communications & digital technology. “They steal from the staff to pay Paul, and they steal from this one to pay Peter.” 

But, as Kohler Barnard tells the FM, it’s not as if the government can afford this. “I don’t know whether they have more money to give for further bailouts.” 

Especially since, given the Post Office’s performance, there’s no guarantee that pouring in more money will result in anything different. 

Last month, communications & digital technologies minister Mondli Gungubele spoke of how there is a “patriotic commitment” by everyone to keep the Post Office open,  referring to “an exciting and bankable strategy” to save it. 

But there’s little sign of this “exciting” strategy. Gungubele was due to give a briefing on the Post Office, but this hadn’t happened by the time of going to print.  

As it is, the Treasury has already pumped R7.3bn into the Post Office in the past few years — with little to show for it. Throw in the fact that even a R2.4bn bailout would still leave a R1.6bn hole in its balance sheet, and it’s clear there are many questions still.

An unconvincing plan 

So what exactly is this “turnaround plan”? 

In February, Gungubela’s predecessor, Khumbudzo Ntshavheni, gazetted a “summary” of the Sapo Amendment Bill — the blueprint for the “Post Office of tomorrow” strategy first spoken about in October 2021.  

According to that 2021 plan, the Post Office had agreed on partnerships as the sole distributor of parcels for Wish.com, Mail Americas and Singapore-based Signature Mail. It also planned to re-establish a dedicated courier division, including a warehouse capability.

This strategy isn’t new. It follows the template of other postal services that have tried to reinvent themselves.  

In the UK, for instance, citizens can apply for or renew passports and driving licences at their local post office. Customers of Australia Post can apply for their tax numbers at local post offices and do a police check, among other things. 

In South Africa, perhaps the most significant service the Post Office delivers is the ability to renew vehicle licences — but even then, the IT systems are often down and the service is frequently unavailable.  

If anything, the “Post Office of tomorrow” plan seems to follow the modernisation template laid down in 2017 by Mark Barnes, the Post Office’s CEO at the time. He spoke of making the branch network the primary contact point between citizens and the government for everything. 

Barnes, however, left the Post Office in 2019 over differences about where the Post Bank should be situated: remain in the Post Office (as he advocated) or as a stand-alone lender in accordance with the government’s inexplicable urge to set up a state-owned bank. 

He lost the argument and, soon after, the Post Bank was officially split off. It was a move which meant the Post Office lost a large chunk of its assets, dragging its balance sheet into a negative equity situation, and making it effectively bankrupt. 

Commentators have deep doubts about the viability of this “exciting and bankable strategy”, not least of which is this: which customers are going to trust a postal service that delivers parcels only 68% of the time? 

Money is also an issue. The new plan requires serious investment, as the Post Office reported only R46m in courier and parcel revenue in 2022 — just 1.5% of its total revenue.

“Since [October] 2021, the Post Office has basically not implemented any elements of its turnaround plan,” Helgard Cronjé, deputy general secretary at labour union Solidarity, tells the FM.  

Until now, the Post Office’s ideas have been anything but reassuring.  

In 2020, it successfully lobbied the Independent Communications Authority of South Africa (Icasa) to give it the exclusive right to deliver parcels weighing less than 1kg. That would have put thousands of last-mile couriers (especially those delivering food and groceries) out of work.  

Thankfully, Icasa reversed that ruling. 

Says Cronje: “What we’ve experienced until now is that state-owned companies are good at making plans, but less so in implementing them. We are sceptical about the chances that the Post Office will drastically change in the near future.” 

But even as revenue plunges, the Post Office’s costs have rocketed — and it hasn’t been able to cut these expenses fast enough.

In the year to March 2022, 91 branches were closed and 55 amalgamated, while it cut employees from 15,862 to 14,460 in the same financial year. That’s a steep drop from the 18,119 staff at the end of 2018. 

Yet, while staff costs totalled R3.4bn in 2018, they climbed to R3.6bn last year, even though headcount had fallen by a fifth. With revenue of just R3bn, you can see the problem. 

The utility now plans to cut another 3,000 staff members (down from its initial 6,000 target in February).  

This cost trajectory is evident in its leases too. In 2018, it had 1,512 branches, costing R284.9m in rent; by March 2022 it had only 1,266 branches, with rent costs of R414.7m. 

Other than closing branches, the Post Office has given away little of its plans to address this, and it declined to speak to the FM for this story.

Losing to everyone 

Given its present position, can the Post Office be saved? 

“Not in its current form,” Anchor Capital CEO Peter Armitage tells the FM. “The inefficiency of the Post Office has led to an accelerated decline in demand for its services and clients have just found alternatives, both physical and digital.” 

Consider the Takealot Group as an example. The digital marketplace has built its own logistics network with more than 15,000 independent drivers delivering an average of more than 50,000 parcels a day. That’s more drivers than there are Sapo office workers.  

Even in financial services, which should have been a burgeoning revenue stream, the state-owned company has a real challenge in the form of Capitec and grocery outlets such as Boxer, Shoprite and Pick n Pay. 

Capitec has 860 branches, at last count, while Shoprite has 1,952. The geographic reach of these companies gives the lie to the oft-trumpeted notion that a country’s post office system is the sole biggest client-facing network. 

In its most recent financial year, Sapo’s revenue from financial services — largely from grant payments (R798m) and the renewal of vehicle licences (R401m) — fell to R1.25bn from R1.4bn. Of the grant revenue, R654m was due to the Post Bank. 

And, as the Post Office collapsed, the Post Bank, which is now responsible for disbursing government grants, scrambled to ensure beneficiaries got their money on time. 

On April 24, the state-owned lender told beneficiaries they could claim their grants from retail outlets Shoprite, Usave, Pick n Pay, Boxer or OK Foods rather than their nearest post office. 

This illustrates eloquently how the private-sector companies are probably a more reliable bet now than the crumbling postal network. 

It doesn’t help that the Post Bank is also in dire straits. Its financial statements for 2022 were given a “disclaimer”, as deficient controls meant millions of rand were stolen.  

As Kohler Barnard says: “They don’t know where anything is. It’s utter chaos ... now they want to turn the Post Bank into this big bank through which they want to run all government finances. So the warning bells are ringing.”

Is there anything left? 

Andrew Bahlmann, CEO of corporate advisory firm Deal Leaders International, says technology is seen by many post offices around the world as the golden ticket to viability.  

He cites the example of “intelligent lockers”. “Smart mailboxes can be installed within high–density apartment buildings and allow for drop-offs and pickups to be arranged via smartphone.” A similar service is already available in South Africa through The Courier Guy’s Pudo locker system. There are 170 kiosks and more than 1,200 smart lockers spread across South Africa, servicing towns including Qumbu in the Eastern Cape and Mogodi in Limpopo. 

Barnes tells the FM that he envisions a Post Office that delivers exactly this sort of thing. Back in 2019, Barnes, a former Standard Bank executive, offered to buy the majority stake in the Post Office, but the government refused to entertain his proposal. 

“Take a state-approved funeral policy, state-approved medical aid, vaccines, passports and so forth and add to it a banking offering, and make them available to South Africans,” he says. “In such a situation, the citizens of South Africa come first.” 

Today, even if the government were to belatedly privatise the Post Office, little remains to be bought by investors.

“When I was still at the Post Office it had a net asset value of R5.2bn,” Barnes says. “Now [the government] needs to pay someone to take it.”  

This is evident in its financials, where equity has been destroyed. This is because, first, the Post Bank was spun off as an independent state-owned company without any compensation paid to the Post Office and, second, the annual losses gutted its balance sheet. 

It’s touch and go as to whether the Post Office can be salvaged before the June 1 court date. “If more creditors join the liquidation, it will have to be completely wound up and shut down,” says Kohler Barnard. 

Armitage, too, is not optimistic. 

“The Post Office will make increasing losses and it is a massive conundrum as to what to do with it. It needs some innovative thinking and would not be interesting to private companies as it is in decline,” he says. 

He isn’t sure it can be saved with the government still in control.  

“There have been billions of rand of value created by entrepreneurs who have developed and grown businesses which have flourished as customers lost faith in the services of the Post Office. [The Post Office] should be doing this themselves, but governments around the world are not good at starting businesses.”

Bahlmann, on the other hand, sees the social aspect of the Post Office as a saving grace. 

“There are already any number of private companies cannibalising the business of the Post Office,” he says. “The Post Office’s social impact is its major differential, which extends beyond the economic benefits provided by its delivery operations. It connects friends and family, engenders democracy, and is a core part of our emergency and national security infrastructure.” 

Even if it survives high noon in court, Barnes says the Post Office may just continue to stutter along, without really being revived. “I don’t think the government will let it fail. But [Sapo] will not succeed either.” 

To Barnes, it’s emblematic of most state-owned companies. “You have to change the mindset of state-owned entities: from continuing bailing out legacy mindsets to investing in new mindsets,” he says. 

And right now, that sort of enterprising thinking seems a bridge too far for a business reluctant to shake off the architecture it was first created with 231 years ago.