Mark Barnes’ plan to save South Africa’s Post Office

Since former Post Office CEO Mark Barnes left the South African Post Office (SAPO) in 2019, its value has been destroyed, but partnering with the private sector could be the key to its turnaround.  

This was explained by Barnes on Newzroom Afrika, where he said that the inevitability of the Post Office’s downfall is staring us in the face. 

The Post Office has been experiencing significant financial difficulty for a decade. It last posted a profit in 2013. Since then, it has posted over R19 billion in losses and racked up a mountain of debt. 

Two years ago, the SAPO entered into business rescue as a condition for additional government funding. 

Barnes became chief executive of the Post Office in early 2016 when the organisation had equity of R10 billion. During his time, he strengthened the balance sheet and grew equity to R16 billion.

However, his plans to modernise the Post Office, transform it into an eCommerce leader, and build it into a banking powerhouse were cut short. 

He resigned on 1 August 2019, citing strategic differences regarding the structure of the Post Office group, particularly Postbank.

The Post Office expressed gratitude for his “enormous service”, acknowledging his role in stabilising the organisation.

“When I left, we had a solvent post office with more than R5 billion in net assets,” Barnes said. “We had a Postbank which had R4.6 billion in cash in Money Market deposits.”

“We had no liability, no borrowings, no treasury guarantee, and we were scheduled to turn profitable in the following year. And I was not making any request for the medium-term budget allocation.”

“Since then, we’ve had an unexplained destruction of value.”

He explained that the Post Office has been making net losses of R2.2 billion a year, and at one point, the liabilities exceeded the assets by R12.5 billion.

“Then the Business Rescue Practitioners (BRP) are called in at extraordinary cost to the public,” Barnes said.

The BRPs have warned that the Post Office faces liquidation if the government does not pump billions into the state-owned company.

While they have made operational improvements and brought the company closer to solvency, the BRPs said the Post Office still needs a R3.8 billion bailout from the government to keep its doors open.

Even after SAPO received a R2.4 billion in the 2023 Budget, they have kept calling for additional funding.

The business rescue proceeding has included several cost-cutting measures, including thousands of employees being retrenched. 

“When I joined the Post Office there were close to 23,000 people working there. I think they’re less than 10,000 now, and they want to retrench another 4,000. I’ve lost count,” Barnes said.

Since employee payroll accounted for the largest portion of the company’s costs, the BRPs planned to reduce the company’s branches to 600 and employees to 5,000, which would save an estimated R1.3 billion in annual expenditures. 

The Post Office – a commercially irreplaceable state asset that could be applied to a wide range of services, from the government to the people of South Africa – has been seriously damaged, Barnes explained. 

It was particularly important to rural areas and to those who otherwise didn’t have access to those services.

“Post was a piece of that. Paying social grants was a piece of that,” Barnes said.

“When we took over social grants with the Constitutional Court’s ruling in our favour, we saved the government R1.2 billion, which they were paying cash payment services to do.” 

“We saved the gogos R1.4 billion by cancelling the Section 26A deductions from their loans that had been forced upon them.”

How to save the Post Office

Barnes explained that public-private partnerships are essential to turning the Post Office around.

Since the private sector is driven by commercial gain, it is important that the state either owns the Post Office or is involved in its operations. 

“But there’s no reason why it can’t marry with other inputs,” Barnes said. 

While courier companies can do the job very well, only a small portion of the population can afford to pay for private-sector commercial delivery services.

If managed transparently, the government could balance subsidised activities, like universal delivery, with potential commercial activities, using state assets for state obligations and commercial assets for competitive services. 

“We in South Africa cannot deal with transformation or development without a commercial foundation to fund it,” Barnes said.

In 2021, Barnes and a consortium offered to buy a 60% to 75% controlling stake in SAPO to rescue it, but the offer was rejected. 

In February 2022, Barnes publicly shared his proposal for saving the SAPO, which involved an independent body assessing the net asset value and forecasting losses, with his purchase price based on the difference.

If his proposal would have been accepted though, Barnes said he would firstly spend a lot of time creating a shared understanding between the state and private sector about where we are, where we’re heading, and what our mandate is. 

Afterwards, he would want the Post Office to be left alone to function. 

However, he added the Post Office may be too far gone to bring back. “I’m not sure there’s a doctor skilled enough to cure that corpse,” he said.

As a result, we need to rethink the entire structure, he said. It’s not just about the Post Office but about how the country can use its infrastructure, state capacity, private sector energy, and international expertise. 

He explained that South Africa could draw from the example of Amazon’s deal with the United Parcel Service (UPS) in the US. “You can buy something on the internet, but someone’s got to deliver it.”

Since someone has to deliver the packages, it makes commercial sense for these two sectors to cooperate. 

“It seems to me it takes an existential crisis, a threat of death of the institution before we stop behaving badly and start talking to each other.”