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RYK VAN NIEKERK: The Post Office is an essential institution in South Africa, but it is experiencing severe financial problems, like most state-controlled institutions. In fact, according to the latest annual report, it is bankrupt because its debt exceeds its assets by R4 billion. The Post Office was placed under provisional liquidation earlier this month [April 2023] after a company applied for this provisional liquidation, because the post office did not pay its rent. The Post Office has since paid the company, but if other creditors come forward and are not paid, it may face final liquidation.
The case is back in court on June 1 [2023] and the institution has indicated that it will defend the application. The application follows after the government threw a lifeline of R2.4 billion to the Post Office in its latest budget. That lifeline will become available to the Post Office 1 on April.
Mark Barnes is from the Purple Group and he was a former Post Office CEO between 2016 and 2019. In 2021 he made an offer to buy the post office, but this offer was rejected. Mark, thank you so much for joining us today. What do you know of what is happening right now at the post office?
MARK BARNES: I’ve sort of made it my business not to know the detail of what’s happening at the post office, because it’s kind of none of my business and the worst thing you can be is one of those half-informed people. So I don’t know what’s going on, other than what’s in the public domain. And what’s in the public domain are the numbers you’ve sort of talked about, which were the financials which were tabled at the portfolio committee in respect of the March 2022 year.
They depict an organisation that is bankrupt technically, and I think absolutely my view is that it’s been bankrupt for some time, probably 18 months or so.
I reflect on the last set of financials that I signed for the year end of March 2019 where the assets exceeded the liabilities by R5.2 billion and they are now R4.1 million in the negative.
Read: Post Office provisional liquidation elevates risk of further bailouts
So there’s been a R9.3 billion swing, and that was a year ago. Add another couple of billion for this year’s losses and you’re talking about an institution that’s bankrupt to at least the extent of R6 billion-odd in my view – and that doesn’t take into account the non-payment of medical aid contributions, pension fund contributions and
tax.
So it’s not good. And the last comment I’d make is that everywhere I look, things seem to be either closed or sold and I would argue (a) that it’s illegal to do in these kind of insolvent circumstances, but (b) that they’re decimating the very core, which is the irreplaceable infrastructure of the post office. So it’s in dire straits.
RYK VAN NIEKERK: The government has announced a lifeline of R2.4 billion, which will kick in on 1 April. But from the figures you’ve just mentioned, it seems even if the full R2.4 billion is used to repay debt, the company is still in dire straits.
The Minister of Communication Mondli Gungubele said this morning [Wednesday April 19] on a radio show that the rescue plan that’s been pitched to him is brilliant, but do you think that R2.4 billion can make a significant difference to return this institution to viability?
MARK BARNES: No … The numbers speak for themselves. I mean, R2.4 billion doesn’t solve a R6 billion hole, or whatever size the hole is. So I don’t know what their ‘brilliant plan’ is, and to be honest, I’m not wishing them to fail. I’m wishing them to succeed. It’s simply unconscionable to imagine South Africa not having a post office for a whole variety of commercial, social and economic reasons.
So I hope they’ve got it right. But that won’t solve it, and money alone won’t solve it, either. It requires us to stop thinking about bailing out an old-fashioned institution, an old-fashioned model, an old-fashioned purpose – which is the old post office – and start thinking about investing in what that ecosystem could be and could mean for South African citizens. That’s the mindset change that we require – no turnaround strategy. We need a ‘Control-Alternate-Delete’.
We need to sit between the business people that are required to implement such a strategy. and the government, whose purpose should be to enable it, cut bait, as they say, and work out something to which both sides can commit and then get out of each other’s way and do it.
RYK VAN NIEKERK: Change within government, especially government thinking, takes time. Sometimes it doesn’t happen. But we’ve seen other state entities like Transnet and Eskom rope in the private sector to assist with the improving of efficiencies. What sort of model do you foresee could work to make the post office financially viable?
MARK BARNES: Oftentimes you don’t come up with the ideal strategy on your own. You look around and you say, well, what does everyone else do, and what other commercially sustainable post offices are doing around the world. They are offering a really wide spectrum of services, which include financial services, which is why I was insistent on the bank remaining inside the post office – not to lend money, but to get continued access to the national payment system, and to be able to do things like pay social
grants and so on, which are in the interests of the people and in the interests of the fiscus.
So you start saying to yourself, well what is the purpose of such a commercially irreplaceable infrastructure? Well, it’s definitely not just to deliver post.
In particular in our country it should be a place that is owned by the state, where you go to feel looked after, where you go as an unlikely participant in the formal economy – to get services and goods that are properly priced, that are in your best interest, and that are not there only for commercial gain. And so you go there to get your social grant paid without someone taking too much off the top. You go there to get your licence, you go there to get your Covid vaccine, you go there to download education, get delivery of antiretrovirals, get your funeral policy which the government has looked at and approved, and so on. It is a bridge – or could be – between the government and the people of South Africa. And of course you’ll go there to get post.
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Now if you want to say, well, the private sector can do all that, of course they can. But at a price, which I would argue 95% of the population won’t be able to afford. So go and try and post a letter if you will, with one of the courier companies from Johannesburg to wherever you like – Bronkhorstspruit – and see how much that costs. It’s not affordable. And so you have to augment these services and provide them on a national basis.
Now, of course you have to marry the commercial sustainability with the need to transform and develop. We have an economy which absolutely still needs to be transformed and developed. Now that’s where you have certain embedded rights for the post office to do certain functions, and that’s where you have an element of government subsidy. But it’s recognised for that.
So for example, if we were to download education, well the government should pay for that, because one way or another they’re going to pay for it. And so we can have a proper sensible investment case which looks at the mixture of commercial and developmental or social mandates, and comes up with something that can survive.
We are not helping each other out and we are not saving each other. We are co-investing in a model that works. Now, we were on our way to doing that, quite frankly, when someone called the government – which is the sole shareholder – stepped in and said, I think we’ll take the [Post] bank. Why? because the bank looked like it was going to be a very profitable organisation, and they want to use it to lend money. The post office function is not to lend money. The post office’s function is to provide the services I’ve outlined. The function to lend money belongs to the banks. Yes, there is a case for a state bank at an institutional level, but the post bank doesn’t qualify [chuckling] to be a state bank. It’s a tiny little bank. I think when I left it had a net asset of R4.5 billion or something, and I’m not sure whether that is still there.
RYK VAN NIEKERK: You have made an offer to buy a substantial stake in the post office. And, as I understand, that offer remains on the table. Have you dealt with the president directly about this, or has it only been through the department responsible for the post office?
MARK BARNES: Well, appropriately, I tabled the proposal with the minister. Also, as I recall, I sent it to the presidency. Neither of those entities responded to me. In fact, the offer was eventually published in the press. I did get an acknowledgement of receipt from the minister’s office, but that was it. No response at all.
And in fact there’s this divide between business and political power, which we must get over, because we are not welcome in the room. When I say ‘we’, maybe it’s just me, in which case fine, get someone else that can do what I can do and, please, I’d be too delighted to welcome such a person into the mix.
But every now and again – and I went recently – you have to go to the doctor for a check-up. I need to know that I’m okay, and he sort of puts me back on track occasionally. I don’t go and ask one of my mates if I’m okay. I go to a doctor, I go to a specialist who’s got the objectivity and the technology and the experience to do a proper assessment of where I am and where I should be going. I’ve just been through one of those things.
The last thing I’d want to do is ask one of my mates from varsity how I am, because he’d probably be rude to me. So that’s not what it’s about. It’s about embracing each other. It’s about leaving our baggage at the door and starting to co-construct investment cases instead of continuously bailing out outdated, almost irrelevant institutions such as the post office would be if it stayed being what it was 200 years ago.
RYK VAN NIEKERK: The question is yes, we can say over and over again we need a post office, but currently the model is not working. There doesn’t seem to be a viable plan on the table, apart from throwing money at the problem. We’ve seen with South African Airways that there was a deal on the table with the Takatso Consortium to take it over. That deal seems to be dead in the water at the moment.
Are we in a situation where government will hold on to this until it’s liquidated or just becomes irrelevant, even? How do you foresee this process going forward, especially post the June 1 court case that will come up, which may result in the final liquidation of the entity?
MARK BARNES: The likely scenario is the one you’ve sketched – the government will continue to keep afloat or let it go. I find neither of those two things acceptable, because can you imagine a world [without a] post office? I mean we’d be the only significant economy in the world which hasn’t a post office. But they might just muddle on until, as you say, there’s enough decay for the private sector to help itself to the remains. Well, that’s not the answer to our divided South Africa.
We’ve already seen that happening in education. We see it happening in personal security. We see it happening in healthcare. We see it happening wherever. We are creating an even more divided society, divided by different metrics than divided us in 1994. But if we continue to create divided affordability and divided purpose, we will eventually never succeed as the Rainbow Nation, the constitutional democracy which we all went and voted for.
Read: Another Postbank ‘glitch’ delays January social grant payments
Now, that’s not okay. And so I think we should fight against the reluctance for the incumbent government to continue on these roads, and we need to start listening to the people of 45 or 50 years old who’ve a long track ahead of them and who’ve children at school and children in the healthcare system, and so on. We’ve got to start involving and looking for some 45-year-olds, some 50-year-olds to take this country to its next 20-year journey.
We can’t rely on struggle credentials to create a new world for South Africa. And so I think you can see case studies – going back to the post office – around the world for sustainable models.
In the US, in China, in Europe, there are all different sustainable composite models. We buy motor cars that are made all over the world in factories that ensure that they are safe and that they work. Why do we want to stick to our old stuff here? It’s time for us to put that aside in the interests of our children and our own legacy.
I’m getting a bit philosophical here, but we have to change, we have to change leadership if leadership cannot have the maturity and foresight and obligation to come to the middle of the party.
RYK VAN NIEKERK: You’ve just alluded to possible cadre deployment. Is it only a management issue?
Would new leadership make a difference? Can it save the Post Office?
MARK BARNES: Not in the absence of a strategy agreed with the shareholder, which is government. You can’t be a state-owned entity and ‘sommer’ go and do whatever you like. I accept that the state has to retain a significant share, and the state has to have certain rights and obligations. But it’s an enabler, not a doer. It makes the rules, it decides policy, it decides how that policy integrates with a broader functioning South Africa, but it doesn’t come and do the work.
If you own the hospital that doesn’t qualify you to walk into the operating theatre and do heart surgery. That’s a cardiologist’s job, not a hospital owner’s job, not the shareholder’s job. And so we need to define the roles that we can play that make us into an effective, composite organism – not everything to everybody.
We are overrun with ministers who change portfolios, it seems to me, whenever the political world turns them from one portfolio to another, absent any experience in such a portfolio – that’s also not how it should be. We need policy formulation and strategic political direction to consult with, engage with, and become immersed in the economic necessities that will drive the country forward.
You cannot have transformation without commercial money. So you have to talk to each other and you have to bring each other’s bits in. We’ve got this right on the sports field. We’ve got a world-champion rugby team that’s fully integrated racially and based on merit, and there’s common purpose and national pride. What's wrong with us? Why can’t we do that between the business people and the politicians, because there’s much more at stake than the Rugby World Cup here.
RYK VAN NIEKERK: I think that’s an excellent point. But your offer remains on the table. What are the terms of that offer? Under which circumstances or conditions would you actually go through with it?
MARK BARNES: It’s a simple offer, and it’s not my offer. I discussed the possibilities with major logistics companies around the world, and I looked at models like Amazon buying UPS, and said, okay, here’s the deal. The deal looks like this: we’ll buy the company at net asset value. That is the net value of the company on the balance sheet. That net asset value is negative. That net asset value will be determined by the auditor-general, not only me. It’s a matter of objective fact.
So the government will have to pay someone to take over that insolvent institution.
The next thing you have to do is agree what the present value of the future losses are, and you have to agree that the purchaser will fund those in some instrument which will affect the outcome of the shareholding, which is why the range I had for us between 60% and 75%.
MARK BARNES: So business acumen and strategic partners would control the company. But the government had a share in my proposal, which ranged somewhere between 25% and 40%, depending on certain objectively determined outcomes. They – the state – had certain entrenched non-typical rights. There were things that we would agree we can’t do and we must do, and those are because we want the benefit of being a state-owned entity. And there is a benefit. The benefit is that you get access to citizens’; data and you can start dealing with that virtuously, that you get certain licences and authorities and things that you can operate.
So, the commercial shareholder, the strategic shareholder [gets] 60% to 75%, government 25% to 40%. But out of that mix, 10% for the workers – 10% for the people that make it happen – because we need to create vested interest beyond unaffordable salary increases. You need to have participation in the upside.
Government infrastructure doesn’tfunction with outcome-based performance pay. It has contracts and fixed salaries. That’s not going to get you out of the mire. That is for long sailing ships with very predefined courses.
So, that’s my offer. We buy it at net asset value [established] by the auditor-general going forward, which will result in the final mix of that shareholding and capital structure. Why would government bother? Because, although they would have to pay someone to take it, that’s the last payment they’d make.
RYK VAN NIEKERK: But that payment would amount to billions.
MARK BARNES: Yes, of course it would. But the alternative is going to run to more billions. Keep it, and
see how many billions that’ll amount to.
RYK VAN NIEKERK: The point I want to make is that government will not even entertain that thought, because there’s a very big anti-privatisation policy within government at the moment, and even the insinuation that they should pay a private sector company to take over their failure – that won’t happen, surely?
MARK BARNES: First of all, this is not privatisation, this is partnership. I don’t think the post office should be privatised. This is a public-private partnership. Second of all, let’s just get logical here. The company’s worth how much? Minus R4 billion on latest numbers. Do you want me to pay for minus R4 billion? Come on man, you pay me and I’ll take that liability off your books. It’s the same thing if I paid you money for a positive NAV (net asset value) as it is if you pay me money to take away a negative, a liability – and a future liability. And so it’s an investment case.
We must do an investment analysis, not a survival analysis. We must do an analysis of what it would take to create a survival, valuable organism, not what it’ll take to keep something that’s on the doorstep of irrelevance alive. That’s not the debate. If you think R8 billion is a big number in the context of our social order and economic prosperity, it’s nothing.
RYK VAN NIEKERK: Do you think the Post Office is as critical to South Africa as Eskom and Transnet?
MARK BARNES: Of course not. Without electricity you just ‘ain’t got anything’. Without an efficient operating railways and port system we can’t export our fabulous fruit and we can’t send off our beneficiated minerals to the world, and we have to take transport off the railways and onto the roads and destroy the roads in so doing. And [there’s] water reticulation. Of course infrastructure is much more.
This is a tiny thing. Post is a tiny thing, which can easily be taken over by the private sector. But then what? Who can send letters any more? You know, they’ll be queuing up to take back the social grants [in the] private sector. Why? Because they make a fabulous profit out of it. We don’t make profits out of it. We’ll make revenue for the state if it’s done by a state organ, which reduces the obligations of the state to raise that revenue by way of taxes.
So, it’s a fundamental shift of a mindset. Are we ever going to get to that mindset? Well, I hope so. It makes economic and political and survival and social sense. But if we are so apart from one another, if we still have inferiority and superiority conflicts arguing about our common purpose, we are going nowhere. As you said, and you’re probably right, they won’t do it, they won’t even consider it. Well, that’s wrong.
RYK VAN NIEKERK: But the reality then would be the scenario you spelt out, where the private sector will take over – and I think it’s a question of price versus service delivery. Which one is better?
MARK BARNES: Well, you tell me. Do you think that our broad population’s getting a good education? My children are, and some of the new elite, the new apartheid elite, the new wealthy are all getting well educated. But how many of them are we? So yes, of course it can happen. So we don’t really mind that the vast proportion of our population is getting a third-hand offering and a tiny, tiny section of the population is getting world-class services and goods. I don’t buy that. I don’t agree with that. I think it’s fundamentally wrong.
If that’s where we are going, then good luck to you. I’m not going anywhere. But let me tell you, people who’ve got a choice are. And so that can happen, you can have the private sector on everything. But for whom? I’m getting involved. I don’t want to prematurely announce it, but I’m getting deeply involved in the replacement of pit latrines in schools.
We’ll be announcing that initiative shortly. Is it okay that some people sit on a hole? It’s not okay. It’s possible that we have the best sewerage and toilet systems in some of our finest homes, while other people are queuing in the rain to do their business in a hole. That’s not okay.
RYK VAN NIEKERK: Mark, we’ll have to leave it there. I’m looking forward to that announcement because I also think it’s absolutely critical. But I think the key philosophical point here is: does the price people pay trump service delivery? And maybe government failure will make that choice inevitable.
But we’ll have to leave it there. Mark, thank you so much for your time. That was Mark Barnes from the
Purple Group and he was a former CEO of the Post Office.
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