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Following the likes of SAA, Mango and SA Express, the South African Post Office is set to be put under business rescue.
The Post Office’s decline, brought on by a lethal dose of operational inefficiencies and governance failures, has raised questions about the state’s control of the entity, especially given its drain on the public purse.
The same could be said about another company under the auspices of the department of communications and digital technology: public broadcaster SABC, which has also suffered amid changes in the market, shaped by more nimble private-sector players.
But experts say the relevance of these two entities is not yet totally spent — and, if their businesses are brought up to scratch, they could continue to serve the best interest of the public.
Late last year the auditor general singled out the two state-owned entities, casting doubt on whether they would be able to continue operating for much longer. Between the two, the Post Office was closer to financial ruin — a predicament that has played out in the government’s most recent move to save it from liquidation.
Last week, the department of communications told MPs of its decision to make an urgent application to place the Post Office under business rescue. The application will be heard in the Pretoria high court early next month.
The Post Office has already been deemed commercially insolvent and illiquid and was placed on precautionary liquidation earlier this year. According to the auditor general’s assessment some months prior, the Post Office wouldn’t make it through the year. It noted that the entity had struggled to implement its turnaround plan because of limited funding.
In an effort to help it implement the turnaround, the treasury granted the Post Office a R2.4 billion bailout in its 2023 budget tabled in February. It also receives a R452 million subsidy from the treasury. But the cash injection came too late and was not sufficient to set the clock back on the financial battering endured in the wake of yearly losses of R2 billion.
Of the Post Office’s 1 108 branches, only 193 make a profit, the department of communications said last week. The entity’s weak financial position has hamstrung its ability to pay suppliers, and it owes its creditors more than R8.7 billion.
The Post Office has struggled to justify its existence in an increasingly digital world, its failure to adapt quickly enough emerging as its core weakness.
“The fact is that the age of the post office that our parents, and even my generation, grew up with is long past,” said Iraj Abedian, chief economist at Pan-African Investment & Research Services.
In the midst of the fourth industrial revolution, the Post Office’s core work has inevitably shifted away from letter deliveries and towards logistics. But, according to Abedian, the government hasn’t been wise to this shift, which requires that the Post Office adopt different performance indicators.
“This is something that our government is completely missing out on. And it’s not just our government,” he said.
The United Kingdom’s Royal Mail has also been criticised for being slow to modernise to compete with its rivals in couriering. This is despite it having spent nearly a decade trying to revamp the business since it was privatised in 2013.
In its 2022-23 financial results, released last month, International Distributions Services, which owns Royal Mail, reported a loss of £419 million (about R9.8 billion based on the current exchange rate) by the postal service.
The Royal Mail has been hit by declines in letter volumes, the effect of the cost-of-living crisis on retail sales, as well as strike action. The business’s parcel volumes were down 21% year-on-year. Letter volumes were down 9%.
As Abedian suggests, the Post Office has struggled to mark its territory amid a rapidly changing market. In May, the treasury also pointed to this dilemma in an update to parliament on the country’s state-owned entities.
The treasury’s presentation said the Post Office “has historically struggled with defining its strategic role as a commercial enterprise”. It said this had resulted in the Post Office being in financial decline for a decade “as it is struggling to address its structural challenges in a modern economy”.
In contrast to the Post Office, the SABC has assured MPs of its ability to continue operating amid significant headwinds — an important development given the public broadcaster’s mandate to provide coverage during next year’s election.
That said, the SABC is operating at a loss of R608 million, by its own numbers.
According to the SABC’s presentation to parliament last November, the broadcaster’s net loss position is the result of underperforming advertising revenue, a symptom of declining audience numbers. Last month, SABC chief executive Madoda Mxakwe told MPs that the broadcaster’s audience ratings declined by about 40% because of the transition from analogue to digital broadcasting, which has taken place in five provinces so far.
The SABC has, on a number of occasions, raised that its public mandate is often at odds with the broadcaster’s commercial obligations. According to Mxakwe, the SABC spends more than R2.4 billion annually to fulfil this mandate, which is unfunded. “The regulations do not help,” he said.
“We are obliged, for example, to advertise for about 12 minutes of every hour. And most competitors are not subjected to that. Forty-eight percent of our television programmes are geared towards our unfunded mandate. That’s largely children, religion, as well as education content, which unfortunately does not sell in the market. Nobody wants to buy into those.”
About 20% of the SABC’s radio programming is consumed by the broadcaster’s public mandate, Mxakwe added. “The core lessons of all of these is that it does affect our ability to go to the market.”
Herein lies a core challenge for both the Post Office and the SABC — as well as for state-owned entities generally: the tug of war between their commercial enterprises and their public mandates.
Aubrey Tshabalala, general secretary of the Communication Workers’ Union, which represents staff at both entities, blamed inadequate efforts to address this dilemma on little political will and poor state capacity.
He noted that at the SABC the slow pace of regulatory changes has made it easy for digital broadcasters and streaming companies to eat its lunch. Last December, the cabinet approved amendments to the SABC Bill, which, among other things, will ensure the broadcaster’s public mandate is adequately funded.
Notwithstanding their financial and operational challenges, Tshabalala said both the Post Office and the SABC are “absolutely relevant”, noting that their businesses have a lot of potential if they are run properly. Insofar as the Post Office is concerned, Tshabalala said he backs the idea of a private-public partnership, an idea that has been proposed by the former chief executive, Mark Barnes.
Abedian said there is a case to save the Post Office, “but only if it can get its act together”.
