Stop giving the Post Office and Denel more money

The head of one of the country’s most influential business organisations warned that failing state-owned companies like the Post Office and Denel are not worth more public bailouts.

In her latest newsletter, Business Leadership South Africa (BLSA) CEO Busi Mavuso pointed out that the upcoming Budget Speech is the first budget from the government of national unity.

She said this speech will test the new government’s ability to set coherent spending priorities that prioritise the country over party politics.

Finance Minister Enoch Godongwana is set to present the Budget on Wednesday, 19 February. 

“The budget this week is a major milestone in all our efforts to achieve 3% growth by the end of this year,” Mavuso said. 

“Government must ensure it lives within its means, focusing spending on growth-enhancing activities and investment.” 

“It must prioritise the creation of sustainable jobs and support an environment that will drive private sector investment.”

She explained that if investors are concerned about a government’s ability to meet its financial obligations over the long term, they do not invest their money in that country. 

“That is why the Finance Minister on Wednesday will need to demonstrate that the government can fund its spending plans and do so without dragging down the economy through tax increases,” she said.

Mavuso urged the government to ensure that the budget focuses on South Africa’s domestic ambitions. 

She said it will need to set a clear path for debt levels and credibly show how they can be reduced. 

“That is key to continuing the improving confidence of ratings agencies.”

“Ratings upgrades are positive for the whole economy, reducing the cost of debt not just for government but all businesses.”

She added that spending must be efficient and directed toward priority areas that can support the economy, like education and infrastructure.

The Treasury detailing its plans for dealing with South Africa’s struggling state-owned enterprises, including Transnet and Eskom, would be a big step forward in ensuring more efficient spending. 

Despite a R254 billion government bailout, Eskom still needs to fix its debt-burdened balance sheet, which is substantially compromised by municipalities that continue to grow their arrears.

In addition, Mavuso said Transnet must invest in infrastructure, but the funds for this do not necessarily have to come from the public purse. 

“Much can be done with accelerated deals with the private sector, especially through concessions,” she said. 

In addition, Mavuso said other perennially failing state-owned enterprises, such as the Post Office and Denel, are not worth more public bailouts.

The South African Post Office (SAPO) and Denel have been draining the fiscus for years, as both companies have repeatedly struggled to show that they can run sustainably.

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South African Post Office

The Post Office has not been able to turn a profit for years despite having received over R10 billion in government bailouts.

In July 2023, SAPO was placed in business rescue, and Anoosh Rooplal and Juanito Damons were appointed as business rescue practitioners (BRPs). At the time, the SOE had a debt of R8.7 billion.

Rooplal and Damons formulated a plan to revitalise the embattled Post Office, which was adopted in December 2023.

As part of being placed into business rescue, the Post Office received a R2.4 billion injection from the National Treasury.

This bailout was used to cover operations, settle debts, and pay salaries and severance packages.

In September 2024, the Post Office reported that 4,875 people had been retrenched out of the 11,083 total staff.

Only 113 of its 1,023 branches were profitable, so 366 were closed. This left 657 branches nationwide.

The plan also included another R3.8 billion bailout from the Treasury to pay statutory and payroll creditors. 

However, in November 2024, this plan was derailed when the Finance Minister said that the Post Office would not receive further government bailouts if it escaped business rescue.

This came as a significant blow to the state-owned enterprise, which has previously warned it would not survive without government assistance.

Former Communications Minister Mondli Gungubele warned in 2023 already that the Post Office would collapse without the extra R3.8 billion. 

“If you listen to what I have said, if it continues, then it means we must close the South African Post Office,” Gungubele said. 

“The R3.8 billion is one of the things that was analysed as going to be necessary to do that turnaround.”

“If you want to rescue SAPO, that is the only way it can go forward.”

Recently, the Communications Workers Union warned that the Post Office may cease functioning at the end of February.

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Denel

Denel has faced financial difficulties for years, many of which are linked to South Africa’s era of state capture.

During Jacob Zuma’s presidency from 2009 to 2018, Denel became a target of state capture, with politically connected executives and board members appointed to facilitate looting.

For example, the 2015 appointment of Gupta-linked executives and the attempted formation of Denel Asia, a joint venture with a Gupta-controlled company in Hong Kong.

This deal was blocked by the National Treasury under Pravin Gordhan, but by then, Denel was already bleeding financially.

In 2022, a judicial panel investigating government corruption found that poor-quality appointments exacerbated the situation at the debt-stricken company.

Therefore, Denel went from being profitable – a R395 million profit in 2015 – to being crippled by debt and liquidity issues.

Between 2017 and 2023, Denel struggled to pay salaries and suppliers, leading to a collapse in operations.

Government bailouts helped temporarily, but mismanagement continued, and Denel failed to secure new contracts.

In June 2023, it told Parliament’s Standing Committee on Public Accounts that it made a profit of R390 million before interest and tax for the year ending March 2023.

However, not much is known about Denel’s financial troubles in recent years, as the company has not tabled an annual report since 2020.

The enterprise’s links to state capture not only hurt Denel financially but also did severe damage to its reputation.

Once a global leader in defence technology, including missiles, artillery, and armoured vehicles, Denel lost key international contracts due to its instability.

For example, it failed to deliver on a crucial arms deal with the UAE, which damaged its reputation.

The South African military’s dependence on Denel also weakened due to its inability to supply equipment.

Denel has received an estimated R9 billion in bailouts over the past five years yet has very little to show for it as the company continues to struggle.

Over the past few years, the company has attempted a turnaround by selling non-core assets, securing new defence contracts, and restructuring its operations.

However, the jury is still out on whether these efforts will make a material impact on the company’s sustainability. 

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