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South African Post Office: Economic Delivery

When a system is in jeopardy, you can either give up on it, or you can start again. The South African Post Office is not only on a road to recovery, but through a new appreciation and application of the team and assets at its disposal, it is reaching to be better than ever before. We spoke with Mark Barnes, the country’s Post Office CEO, about how he plans to not only improve the entity itself, but through doing so, the lives and opportunities of South Africa’s poorer population.

In 2015, the South African Post Office was faced with challenges. The system had become synonymous with delays and errors, and was operating at a substantial loss. A continuous cycle had set in, where underachievement would lead to a reduction in investment funds, which in turn would lead to a further decrease in efficiency. Come 2015, the government conferred on what was to be done, and decided to downsize the state-owned postal operation. However, investment banker Mark Barnes had another suggestion. In pitching it to them, he found himself the new CEO of a system that desperately needed turning around – but he thought he knew how to do it.

“I put it to the government when I met with them then that the post office business wasn’t just about post – it was about an established and commercially irreplaceable infrastructure and footprint that could serve multiple purposes between the government and its citizens, and between business and people. What we had was a unique set of regulations over us and a unique footprint that was not being leveraged. As a company, the post office is asset rich (it has lots of properties) and has an extraordinary footprint, and yet was failing.”
At the time when Mark stepped in to the role of CEO, the Post Office was operating at about 55% of acceptable delivery times. In 2014, an industrial action that lasted four months became the tipping point for many; after not receiving their mail for this long, those of South Africa’s population who could afford it started turning to private sector alternatives. This led to a dramatic 30% reduction in the Post Office’s turnover: “Any company that loses 30% of its revenue is going to go into a dramatic decline. We lost market share, we lost people, and we lost that turnover. So, we had to start again.”

The negative fallout didn’t just affect the Post Office and the 25,000 people in its employ, however – it affected the population at large. Without successful mail delivery, lives come to a stand-still; those who could afford alternatives were greatly out of pocket by doing so, from businesses to individuals, but those who could not afford alternatives were stuck. Without a state-provided, price-regulated mail service, with locations available to even the most remote communities, people are left to fall unsupported through the cracks of the private sector.
“As a government entity, the Post Office answers to a set of universal service obligations, by which we are required by law to have a minimum number of representatives per capita in various regions. You should be able to find a post office within a certain distance of where you live. We need to run a financially sustainable service, but we also need to make postal services accessible to all of the citizens in our country.”

“South Africa has a very economically divided economy, and the inequality between the ‘Haves’ and the ‘Have Nots’ is probably the widest in the world.” The Post Office was obliged to provide an accessible service for all people, and Mark refused to see this obligation fail, describing the possibility as an “unacceptable social and economic outcome, unless you do something about it.”

Mark felt that through his proposed growth strategy, he’d devised a way to save not only this essential state service, but in doing so, to create and improve further support systems that would increase economic freedom in the country and help to bridge the economic gap. This belief in economic equality was his main motivation when he brought his proposition to the government, but he got more than he bargained for: “I didn’t come looking for the CEO position. I just came to tell them what I thought they should do, and they said ‘Well, why don’t you do it then?’ I couldn’t really say no.”

To turn around the fortunes of the Post Office system, two major changes needed to take place: the system needed to be made more efficient, which would take time and funds, meaning it also needed to diversify and develop its revenue base. Other post offices around the world have these diversified revenue streams, but South Africa’s Post Office was focused primarily on traditional post.

One of the avenues Mark wanted to branch out into was to sufficiently meet the logistical demands of eCommerce. “Parcel revenue is booming, so much so that I’d argue that post office infrastructures around the world underestimated the systems and investments they’d need to keep up with the way that people are shopping online.” Physical letters may be being replaced by email and social media, especially with companies striving to be greener by sending out less paper mail, but online shopping is only on the rise. Out of all of the private sector logistics companies in South Africa, none have the physical footprint or the legal advantages of the Post Office, so Mark saw no reason why the state system couldn’t rise to the task:

“South Africa has many small populations dispersed over a large geographical area. There’s only one institution in all of these areas, and that’s us. Additionally, as a state owned and regulated entity, we have the right and obligations to clear customers, and we have the right of access to the airport and harbours.” These advantages should not only allow the Post Office to operate efficiently in this area, if run correctly, but also put it in a strong position to make mutually beneficial partnerships with private courier companies, rather than losing business out to them as it did in the past. “Africa is the fastest growing population in the segment: instead of relying on Alibaba in the east and Amazon in the west, should we not be developing our own eCommerce platform?” The Post Office will finally be launching said platform within the next few months.

Letters and parcels are only the tip of the iceberg, however: again looking at the asset that is the Post Office’s physical footprint, Mark sees no reason why it can’t move into absorbing work such as the issuing of government documents and renewing driver’s licenses, and even the delivery of chronic medicine, rather than people in remote areas needing to travel into Johannesburg for said essential medicine every month. He has even expanded the Post Office into delivering digital television capabilities to people still using analogue technology. Before working towards any of this, though, initial investment funds were needed, and belief needed to be restored in the Post Office, both externally and within the team itself. An efficient team and a well-built and funded system are a circular pair of needs, but positive change had to begin somewhere.

This cultural change within the workforce was one of Mark’s greatest challenges. Working within a declining organisation, staff had become demoralised, and when such situations have spread company-wide, it takes more than a change of management to reverse the damage: “If you walk into any organisation that has manifestly failed, which the Post Office had, you find extraordinary issues. People would prefer to fail collectively to standing up and showing their ability to succeed. You don’t want to be the guy who shows everyone else up. We had to say, ‘Ok guys, it’s alright to succeed.’”

A mentality of under-achieving had developed, with staff seeking to pass problems along to another department rather than initiate a solution themselves. This mentality does not necessarily indicate poor staff, but rather, poor management, and with encouragement, Mark found that this same team were eager to turn things around. He didn’t attempt to resolve this issue from a distant office – instead, he started from the lowest levels of the organisation upwards, spending face-to-face time with his new employees: “People had gotten so used to being blamed and down trodden. By walking around and listening, I found a quality of persons far better than they’d been judged.”

Through the introduction of fair rules and personal attention to detail that encouraged and rewarded initiative and success, the tables started to turn. “Whenever something good happens here, I phone the person responsible, no matter how long that takes.” This sort of recognition began to shift the mentality, and the ability to achieve once more seemed a possibility. However, this change still needed to be supported by actual resources, and the Post Office was operating at severe losses. Mark tried requesting funds to invest in new sorting centres and other upgrades to the mail itself, but couldn’t receive funding for this when faith in the Post Office was so low. What he and his team could receive funds for, however, was the setting up of another revenue stream – financial services.

“It took 18 months, but we have now taken over the payment of social grants in South Africa, which is a massive business that was previously conducted by the private sector. We couldn’t receive funds to develop the Post Office, but we could receive funds for and from this, as it is an essential system in South Africa. We pay 11 million beneficiaries about ZAR10bn a month, and that big piece of economics is now being drawn back into the postal circle. The income we derive from that, which was previously paid out to the private sector, forms the capital with which we can upgrade.” These social grants give government support to those in the population who are in need, and rather than the profits of this lining private sector pockets, they are now re-invested into other systems that are seeking to improve lives – both the postal system itself, and Mark’s other, main project.

These social grants are paid out by the Post Bank, a financial division of the South African Post Office that is soon becoming a wholly-owned subsidiary. Mark’s second in charge, Chief Operations Officer Lindiwe Kwele, is responsible for the operations of the social grants payments and the postal system. “We are now expanding our financial services to the people that bank with us, and significantly growing the people who bank with us rather than regular commercial banks. We’re still not in the lending business, just the transactional business, but we are applying for a lending license. Once you’ve got an integrated payment system, that system can be applied to any payment between government and its citizens.”
Through this bank, Mark aims to not only fund the physical Post Office services, but to achieve the real motives that drew his interest and inspired the speech he made to the government: “The main reason I came here was for the Post Office and Post Bank to play a role in new banking models that seek to address the economic inequality in our society. We come from a divided society, and we have a huge unbanked portion of the population who don’t have assets, and so can’t raise money. That is very old-fashioned thinking.”

This old-fashioned thinking does not line up with the way that many South Africans live, and so they aren’t able to access beneficial loans. “A lot of our people live in townships and informal settlements, and inside these settlements are a lot of micro enterprises like barbers, shops and many forms of small traders.” Traditionally, many people in these areas don’t have the spending track record or the traditional assets required to receive a business loan or similar support from a bank, but Mark wants to change this. “Technology now allows you to oversee any particular account. So, if you are operating as a small enterprise selling milk within your community and generating predictable income, we could incrementally advance you money to your business to warrant you the opportunity to grow, without you owning any assets.” By monitoring that the funds are being invested into the business, and not spent elsewhere, the Post Bank would be able to support these small businesses that a private bank would deem too small or too informally placed to deal with.

Through this, Mark hopes to enable and empower businesses and individuals in these areas. The micro traders are just one of many examples of people with unofficial but technically bankable streams of income; another that Mark shares with us is the landlord or landlady who lets out two of their three rooms in an home that their family has lived in for generations but could not obtain a title for due to past property ownership discriminatory laws. Again, this is a stream of revenue, but not one that a traditional bank would recognise. These existing systems simply don’t work in acknowledging the way that much of South Africa’s population lives. “What I’m trying to do here is create a pervasive state asset that can commercially, using modern technology, bridge the economic divide.”

This isn’t to say that such individuals absolutely couldn’t obtain a loan, but without assets or security, the rates available to them are extortionate. “In a divided society, the unit cost of consumption is highest for the poor. They borrow money at costs which are self-evidently not affordable. We, as an organ of state, can make credit an enabler and not a destroyer.”
Other changes that Mark wants to see come into effect include group savings accounts that allow families or communities to pool their funds, and a move to promote, educate on and spread the use of digital payments in such areas, which would allow individuals to spend their digitally-handled social grants in the shops that they actually frequent.

Getting all of this set up is a slow process, and involves competition and tension from the existing banking sector, including Mark’s old contacts. “I’m not always the most popular kid on the block, but if you’re doing the right thing, that’s all that matters.” The Post Office is still growing and recovering from what it was; whilst its efficiencies are improved and its new revenue streams are growing, it will take some time before it is turning a profit. “That’s alright by me. These things take time to build and the reward of extending services to the poor is much sweeter. We are fortunate to have a vibrant Minister and a board that are fully behind our vision.”

Mark speaks passionately about the potential of the Post Office and his vision for it, and we can see why. If a dwindling state entity can not only be revived, but in doing so, can make such a positive change for entire segments of the population, then that outcome is worth every effort poured into it. Assisting an economy in this way has a ripple effect, from individuals to communities and to the country as a whole. “When you start to talk about an enabled economy with the prospect of individual economic dignity, you’ll understand why I came here – it wasn’t only about making the post arrive on time.”