Death of South Africa’s oldest state-owned company

If the Post Office closes its doors in October 2024 due to a lack of funding for its business rescue, it will mark the end of one of South Africa’s oldest companies and the oldest state-owned entity in the country.

SAPO’s business rescue practitioners recently told members of Parliament that they require a R3.8-billion bailout to avoid the entity going into liquidation sometime next month.

Deputy communications minister Mondli Gungubele has said government is committed to providing the funding.

However, he also said National Treasury needed a more detailed business rescue plan to ensure the Post Office does not continue draining the public purse.

The latest bailout will be in addition to R10.4 billion in bailouts paid to the struggling entity over the past decade, during which time it recorded total losses exceeding R19 billion.

When one considers the 232-year history of the South African Post Office (SAPO), it is interesting to note that the entity was only profitable for less than a decade in the early 2000s.

For most of its existence, profitability was not a priority, as the SAPO played an irreplaceable role in facilitating essential communication services and transporting postal items.

That was before the emergence and expansion of telecoms, the Internet, and private courier services provided various alternatives to traditional mail and small goods delivery via postal services.

At one point, SAPO looked well-positioned to take on these challenges.

Following a strategic shift to become more business-orientated and customer-centric, it started turning profits between 2003 and 2011.

It would be hard for many to believe SAPO was also nominated for four World Mail Awards in 2004, including in the categories of technology, e-commerce, innovation, and security.

MyBroadband looked into the history of South Africa’s postal services and SAPO to try and sketch a clear picture of its current predicament.

While the use of rudimentary mailing practices in South Africa dates back over half a millennium, the Post Office’s story begins on 2 March 1792, when acting Cape governor Johan Isaac Rhenius set up a post office in a room next to the pantry at the Castle of Good Hope in Cape Town.

Postal services take shape

A regular inland mail service was operating by 1805, using farmers on horseback to deliver post between Algoa Bay and False Bay.

There was also a mail wagon that ran between Cape Town and Stellenbosch twice a week.

The first dedicated mail boat service between South Africa and another country ran from 1815, transporting post from the Cape to England.

In 1848, the Transvaal government appointed its first professional postmen to transport inland mail in its area of governance.

In 1853, the country got its first mail stamp — the Cape Triangular stamp., In 1860, the first postboxes were put up in the Cape.

South Africa’s first mail train began operating in 1883.

Over the next few decades leading up to the turn of the 21st century, local postal services would continue to develop and achieved important milestones:

• 1905 — The Cullinan diamond, the world’s largest diamond to ever be discovered, is sent from South Africa to London via the Post Office’s normal recorded post.
• 1911 — The Post Office sends first mail transport by motor vehicle and airplane.
• 1914 — The Post Office starts using ox carts to deliver mail after initially experimenting with camels.
• 1919 — Regular motor vehicle and airmail postal services launched.
• 1932 — First overseas airmail service launched on the Springbok Air Service.
• 1961 — The Republic of South Africa launches first stamp series after withdrawing from Commonwealth due to Apartheid.
• 1973 — First postcodes introduced in South Africa to enable automated mail sorting. Standardised letters launched later in the same year.
• 1991 — Telkom is spun off from SAPO as a separate company focused on telecoms.
• 1994 — SAPO is re-admitted to the Universal Postal Union following the dismantling of Apartheid.
• 1995 — SAPO launches first retail postal agency in Bloemfontein.
• 1996 — Former independent homeland postal administrations incorporated into SAPO.
• 1998-2001 — SAPO switches strategy to become business-orientated and customer-centric.

From profits to technical insolvency

Following its strategic shift as it welcomed a new millennium, SAPO’s 2003/2004 financial year was the first in which it reported an operating profit. That continued until 2012/2013.

However, like its counterparts in many other countries around the world, it soon began feeling the heat of declining mail volumes due to increased email and Internet usage in South Africa.

The impact was exacerbated by SAPO gaining a reputation for late and slow deliveries and some of its employees stealing people’s packages, eroding its trust among the South African public.

By 2014, SAPO was unprofitable and had a negative net asset value, which meant it was technically insolvent.

It required a bailout of R205 million from the government in that year, followed by another R174 million and R650 million in 2016 and 2017, respectively.

Mark Barnes was appointed SAPO CEO in 2016, and the institution’s financial standing improved significantly until he left in mid-2019.

Barnes turned SAPO’s negative net equity of R141 million to a positive R5.19 billion by growing its assets from R10.12 billion to R16.07 billion in three and a half years.

Unfortunately, Barnes stepped down in August 2019, citing disagreements with government’s strategic direction for SAPO, including separating the Postbank from the Post Office.

Following his departure, SAPO’s assets plunged from R16.07 billion to R4.5 billion over the next three years.

SAPO’s liabilities have also increased to R12.4 billion in its last reported financial year.

Proposal to save Post Office

Barnes recently told Newzroom Afrika that SAPO could still be saved by partnering with the private sector.

Barnes said although private courier companies can handle deliveries well, only a small portion of the population can afford their services.

He explained if a public-private partnership was managed transparently, the government could balance subsidised activities like universal delivery with potential commercial activities.

It remains to be seen whether the Post Office will get the money it requires without an airtight plan to ensure its financial stability.

Its failure to perform effectively is highlighted by the fact that the portion of deliveries it completes within five business days dropped from between 89% and 97% in 2012/2013 to 51.62% a decade later.

The business rescue practitioners have also already reduced SAPO’s headcount from 11,083 to 4,875 and cut its branch footprint from more than 1,000 to less than 700 locations.

Those numbers show that SAPO is a shadow of its former self, having once employed well over 18,000 people spread across 1,500 branches.