Proposed Budget 2025: R1.8bn lifeline for SA Post Office as Treasury intervenes
|Published
The Budget has been postponed to March 12 after a deadlock within the Government of National Unity coalition partners over VAT. This was part of the proposed Budget that is now under review:
The Treasury said it was working together with the Department of Communications and Digital Technologies and the business rescue practitioners of the South African Post Office (Sapo) to ensure the effective implementation of the business rescue plan that involved cutting costs and paying creditors. As part of this plan, it closed 354 branches and retained 657 branches.
Sapo was placed in business rescue on July 10, 2023. In 2023/24, Sapo reduced costs and met some operational targets, yet it remains financially stressed due to high net losses and low revenue.
The Treasury in its Estimates of National Expenditure (ENE) noted that the Department of Communications and Digital Technologies has allocated R1.8 billion to Sapo for its universal service obligations to provide postal services in underserviced areas.
For over a decade, most state-owned companies (SOC) listed under schedule 2 of the Public Finance Management Act (1999) have not met the legal requirements to maintain sustainable profitability, manage risks effectively and generate returns while ensuring prudent use of public resources. Various initiatives, including turnaround plans agreed with government, are under way, but progress has been mixed.
In 2023/24, state-owned companies’ reported a negative return on equity of 15.6%, highlighting an ongoing inability to turn a profit. Sales were subdued owing to operational constraints and inefficiency, while costs remained high. In the context of persistent weakness, the government has to make difficult choices on the future of these companies. Options include closures, mergers and withdrawal of financial support.
Poor quality management and the adoption of mandates that are not financially feasible should also be addressed. The Treasury said that failure to make proactive decisions will result in continued fiscal pressure or financial collapse, leading to service disruptions and large job losses.
In the interim, state-owned companies continue to use the majority of their cash to meet debt obligations. Cash flows remain insufficient to cover operational costs, financial obligations and capital requirements. Consequently, these companies are unable to effectively fulfil their mandates.
Arms manufacturer Denel remains unable to meet its financial obligations. As outlined in the 2024 Budget Review, Denel was granted R3.4bn in the Special Appropriation Act (2022) to implement the plan. It was permitted to access a portion of the funds after meeting certain milestones, although the completion of some targets – particularly the sale of non-core assets – remains outstanding. As Denel has implemented aspects of the turnaround plan, government is granting access to the remaining ring-fenced funds. After debt repayments in the past year, these amount to R914 million. These funds will help Denel to cover legacy obligations, invest in essential capital projects and optimise restructuring.
As noted in previous budget documents, broader policy decisions are required for Denel to complete its turnaround plan and become sustainable.
The increase in spending on arms as a result of various conflicts around the world should provide Denel with revenue growth going forward.
In his first Medium-Term Budget Policy Statement (MTBPS) in November 2021, Finance Minister Enoch Godongwana said he would practice “tough love” when it came to SOC bailouts and that came through again in his media briefing ahead of his actual October 2024 MTBPS speech.
“SOC bailouts have cost the government R520 billion over the past few years. That has meant that this money must come from somewhere and that in most cases has come from the reduction in social services, so there is an opportunity cost to SOC bailouts. One must ask what is the immediate future of the Post Office and is it sustainable in the future,” he asked.
BUSINESS REPORT