/ 13 May 2016

Barnes storms the Post Office

Delivery service: Mark Barnes wants to trade on the Post Office’s unequalled reach throughout the country.
Delivery service: Mark Barnes wants to trade on the Post Office’s unequalled reach throughout the country.

Last week, I bought Mark Barnes lunch.

Over his wrap and coffee, the new chief executive of the beleaguered South African Post Office laid out his vision to turn around a state-owned entity that has been financially mismanaged for years and has watched everyone from private sector courier companies to food retailers steal its market share.

It has faced protracted labour battles – when we meet some of its workers are again officially on strike. It has been found wanting by public protector Thuli Madonsela and, like so many other state-owned entities, it is billions of rands in the red.

Enter Barnes, the former banker turned businessman with an actuarial science degree, and his own plan to overhaul the postal service from a business where 68% of its revenue comes from delivering mail to an e-commerce, logistics, infrastructure and financial services player.

Arguably Barnes, with his outspoken column in Business Day and his long résumé in the private sector, which includes Standard Bank, Brait and the Purple Group, is the least likely candidate to head up a state-owned entity.

But, he says, that the Cabinet approved the appointment of a businessperson to a state-owned entity is something the government should “get credit for”. The deal he has presented to government is this: “Achieve financial stability in three years and a valuable asset in five.”

“Do we need a Post Office? Hell, yes,” is his short answer, when asked if the organisation is still relevant.

Barnes has been described by Minister of Telecommunications and Postal Services Siyabonga Cwele as a “breath of fresh air” and labelled by others as everything from “maverick” to “arrogant”.

In person, his salt-of-the-earth affability comes across as a foil for a fierce intelligence and drive. Barnes is frank about where the postal service has been. “There is no question that there is fundamental trust deficit at the post office.”

But the problem has never been with “bottom of the post office”, he says, referring to the men and women in its sorting rooms and at its counters. The problem has been “at the top”. He says that to do away with the Post Office would be nothing more than an extremely costly way to shed a deeply undervalued socioeconomic asset.

Turning it around will not be easy. The entity lost R1.5-billion in 2015 and needs R3.7-billion to recapitalise.

According to a presentation given to Parliament in February, mail revenues declined by 13% and courier revenues by 31% from the previous year. The state entity owes its creditors more than R900-million, to the extent that even at its head office, it is short of paper, including toilet paper. Of its 2 448 branches, 31 have been evicted or locked out of the premises and closed, and 289 have received a summons or letter of demand.

But, says Barnes, this is going to change.

The first payments to outstanding creditors has been made. This is in large part thanks to the R650-million cash injection that the treasury granted the institution and paid over in mid-April. It was specifically earmarked for paying creditors and other entities essential to the continuation of business.

The Post Office is also in advanced discussions with the banks to provide funding against a R2.7-billion government guarantee that has been extended for another three years. These talks are for funding of about R1.8-billion. He is determined “to get all of the capital we have asked for, because most of it is to pay for the past”.

It is the future that Barnes wants to focus on. There is no reason the Post Office, with the largest branch network countrywide, could not, for instance, be paying out social grants to the country’s nearly 17-million welfare recipients.

If it was able to land this contract, this alone would take the institution from a loss-making organisation to a profitable one, he says.

The Post Office could also be used to issue identity documents, something the department of home affairs has begun outsourcing to banks. This is a service that the Post Office can provide, in much the same way that people can renew their vehicle licences at its branches. With its vast footprint, it is also far better suited to meet the needs of the country’s millions of rural or poorer citizens, many of whom have little choice but to use the Post Office.

It also has the Postbank, with its R5-billion in deposits. There is no reason why the Postbank cannot compete with private sector players to service the unbanked and those needing unsecured credit. Unsecured lending in South Africa is never going to go away, Barnes says. The problems seen in this market, highlighted by the collapse of African Bank in 2014, will not go away either, unless the state becomes a serious player.

This week, Postbank came a step closer to becoming a fully fledged bank. In his budget vote address, Cwele announced that, in February, the Post Office complied with the section 12 requirements for permission to establish a full banking company under the Banks Act. The next step will be compliance with section 13 requirements, which include appointing a board, incorporating a Postbank company, and the registration of the bank controlling company. Cwele said plans are well underway to appoint a new chief financial officer and other senior officials.

Alongside the pile of letters from people who want to partner with the Post Office, Barnes says he now has a growing pile of CVs from people who want to work there.

The domestic mail, envelope and courier market is valued at roughly R10.5-billion and is growing by between 10% and 25% each year, according to Post Office data. Barnes wants to have captured at least 10% to 15% of this market in three years.

Unlike many other state-owned entities, the Post Office does not face massive capital expenditure in the future. And, in a world in which many service providers are abandoning their physical branches, “the Post Office could be the only infrastructure player left standing”, which would be its “differentiating competence”, he says.

As part of the turnaround strategy, Barnes has initiated a review of the institution’s property and contracts. “And every deal that’s come to me has been biased against the Post Office.”

The public protector’s recent report reveals how badly these kinds of contracts have hurt the entity. She found its 10-year lease agreement for its Centurion-based head office left it out of pocket by about R70-million and was tainted by corruption.

The Post Office will no longer be the “soft-soap” it once was, says Barnes. Its commitment to co-operating with the public protector and its decision to be a co-applicant in subsequent investigations by the Special Investigating Unit is a sign of things to come. “There will not be that kind of wasted expenditure again,” he says.

Barnes is quick to defend his employees. There is an “enthusiasm for change. People have been longing for leadership and direction and certainty”, and come to work in the “prospect of economic dignity”.

Among labour’s long-standing demands is the conversion of casual workers to permanent employees and the payment of wage increases agreed to in the past.

Although the Communication Workers’ Union has publicly called Barnes arrogant, last Friday the union and the Post Office jointly announced that the union had suspended industrial action for a month, while both parties would continue to discuss outstanding labour issues.

Barnes is convinced that the Post Office can meet the unions’ demands. But this is on the proviso that everyone embraces the institution’s new growth strategy, and that revenues do turn around. “If everyone in the Post Office does one thing incrementally better than they did last week, we can do it.”

Barnes takes us on an impromptu visit to a nearby branch. After greeting the customers, he goes around to the back of the counters to greet the staff. He is quickly monopolised by the branch manager, who, in no uncertain terms, names the things the staff need to do their jobs.

The list starts with the simplest item, paper. Barnes promises that now that suppliers have begun to be paid the necessities will begin arriving.

The manager is not afraid to tell the chief executive exactly how tough things have been; in a bid to provide customers with receipts, enterprising staff have been printing them on the back of recycled paper.

“We can go anywhere in this company with people like this,” Barnes says.

SA Post Office amount and volume