GCIS & South African Post Office 2020/21 Annual Performance Plans; with Minister and Deputy Minister

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Communications

14 May 2020
Chairperson: Mr B Maneli (ANC)
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Meeting Summary

Video: Portfolio Committee on Communications, 14 May 2020

Annual Performance Plan (APP) of Government Departments & Entities 20/2021

The Committee convened to receive briefings from the Government Communication and Information System (GCIS) and the South African Post Office (SAPO) on their 2020/21 Annual Performance Plans and budgets in a virtual meeting. Both entities stressed their budget constraints and the exacerbating effect that the COVID-19 pandemic had caused to the operation of their entities.

The GCIS pointed out that it was playing a crucial role in disseminating information about the COVID-19 regulations during the lockdown period, all of which was placing additional pressure on its limited resources. Members sought information about the economic recession’s impact on the GCIS’s budget, its working relationship with private media, corruption within the entity, critical vacant positions, the high proportion of the budget spent on the compensation of employees, as well as the increased use of external contractors.

SAPO said it had lost R1 billion in revenue over the past four years, and it was estimated that due to CORVID-19, an amount of R1.9 billion would be lost this year. It had been a bad decision by SAPO to carry the responsibility of paying South African Social Security Agency (SASSA) grants, which included the security, the cash pay points and the dignity of services. This responsibility had not accrued profit for SAPO, but had rather resulted in a loss of R550 million. Business strategies to bring in more revenue included e-commerce initiatives which were under way, and cashless Automated Teller Machines (ATMs), which needed to be rolled out to other provinces.

During the discussion, Members sought clarity on the projected R1.9 billion revenue loss, the employment of former convicts, and the risky implications, the impact of the separation of Post Bank from SAPO, the need to fill critical vacancies, concrete business strategies for SAPO’s survival, and the dispute between SAPO and PostNet

Meeting report

GCIS Strategic and Annual Performance Plans

Mr Jackson Mthembu, Minister in the Presidency and Acting Minister of Communications, led the Government Communication Information System (GCIS) delegation. Ms Pinky Kekana, Deputy Minister: Communications, was also present.

Mr Mthembu said that the filling of vacancies for the executive heads of the GCIS was under way. So far, the GCIS had advertised and interviewed its preferred candidates. The preferred Director-General (DG) would be presented to the Cabinet for approval. He expressed his confidence that the DG would be leading the next presentation to this Portfolio Committee.

Ms Phumla Williams, Acting DG, briefed Members on the mandates of the GCIS, and outlined the strategic focus and priorities for the next five years. She highlighted its determination to focus on creating jobs and having Gender-Based Violence (GBV) conversations in future, as well as engaging in more discussions on corruption.

Describing the GCIS’s broad outcomes and planned performance, she was happy to announce that it had managed to achieve a clean audit outcome. She assured the Committee that it would continue to empower citizens around the issue of COVID-19. The outcomes were informed by the Department’s research unit, media analysis and the evaluation of the work that the Department had done. The focus this year would be on integrated system communication at the district level, so that people were informed by their municipalities in a much better way.

The other issue she highlighted was the incorporation of entities such as the Media Development and Diversity Agency (MDDA) and Brand South Africa into the GCIS. Transformation was the last area highlighted.

Ms Williams said the GCIS budget continued to be a challenge, and this had been raised many times over the years. With the impact of COVID-19, there was a need to drive a behavioural change to the new normality at the entity. As for now, its budget had been cut to its bare bones, with only less than 20% of its budget available for its operation. In line with the constitutional mandate for South Africans to be provided with quality and accurate information, she asked the Committee to consider that the budget issue must be addressed in a meaningful way.

Mr Hennie Bekker, Acting Chief Financial Officer, summarised the GCIS’s financial performance. 76% of its total budget was allocated to compensation of employees (CoE) and transfer payments to public entities. He repeated the Acting DG’s plea that the GCIS was managing with a very lean budget. If one deducted its contractual obligations from the remaining 24%, the actual budget percentage for its operation was less than 24%, so its hands were tied when it came to providing for the operation.

Discussion

Mr C Mackenzie (DA) thanked Minister Mthembu for getting the President to address the nation the previous night.

He commented that if the GCIS thought that the current budget was lean and constrained, it would have a tough time facing reality, as its budget would be affected by COVID-19 and the recessing economy. It was unlikely that it would get more money.

GCIS was a recipient of much free media coverage, so he asked whether it could leverage the private media to get its messages across, or if it faced hostility from private media.

He congratulated the GCIS for its establishment on the Online Government Directory. He understood a huge amount of work had been put into it.

Referring to the presentation, which had stated that 95% of reported corruption cases had been resolved in a year, he asked what the corruption situation had been like in the last two years at the GCIS.

Did the GCIS produce digital materials used for tourism, such as those that were posted on Twitter and Facebook?

Ms P van Damme (DA) highlighted the critical positions which were vacant at the GCIS.

She recognised the important role of communication in the fight against COVID-19, and commented that it was a pity that this aspect had been neglected and overlooked.

She asked the GCIS to provide some estimated budget figures to indicate how much it had been spent so far.

Ms Z Majozi (IFP) applauded the GCIS on its good performance in the area of financial sustainability.

On programme two (optimised assets and infrastructure) she asked what communities had been reached so far.

She sought clarity on the 76% COE figure, as she did not think it was in accordance with the Treasury’s threshold.

Ms P Faku (ANC) hoped the GCIS’s good work and enthusiasm would continue, and congratulated it for having received a clean audit.

She expressed concern about the inadequate budget for GCIS, given the important work it did against the backdrop of the COVID-19 pandemic. She applauded the Minister and the team for working with existing resources and exploring more platforms for communication to people.

GCIS’s response

Minister Mthembu responded that the budget constraint was a huge challenge for the GCIS. It was spending a lot on COVID-19.  Currently, it had to divert funds from other budgetary items to spend on communications on the pandemic. It needed budget in order to get information on to public media and social media platforms. He pointed out that it was the GCIS’s responsibility to inform people about levels of lockdown, and what each level means. All these communications required more funds. The entity had liaised with the Minister of Finance, and there was agreement that this Department was at the forefront of fighting COVID-19. The Finance Minister had been very amenable to the GCIS’s request.

Mr Michael Currin, Deputy Director- General: GCIS, commented that he was overwhelmed by the social solidarity demonstrated in this industry. He highlighted GCIS’s capacity to form partnerships. He had participated today in a webinar that was run by the media, who had shown their support for GCIS by offering to help them to advertise information on COVID-19. The GCIS had the ability to gather numerous stakeholders within 48 hours to broadcast information on COVID-19.

The GCIS was very serious about building an inter-governmental system. However, there were long-standing vacancies at the provincial level for heads of communication, and these required additional budgets for the positions to be filled.

Ms Williams responded on the CoE percentage of the human resources (HR) budget. The irony of cutting a budget was that it was guided by the principle that one made cuts where one was able to do without something. As the size of the budget allocated to the GCIS had always been lean, the continuous cutting of its budget had skewed the percentage, making the COE account now for a larger share bulk of its operational costs. In the beginning, it had accounted for 49% of its budget.

Further discussion

Ms Van Damme asked if the GCIS had contracted any external service providers, and if so, to provide a list of those contractors.

Mr Mackenzie said his question about corruption had not been answered. He wanted to know about the 95% of reported corruption that had been resolved at the GCIS in the last two years, and approximately how much in rand terms had been lost due to corruption. What was the extent of corruption within the entity? Were there any current Special Investigating Unit (SIU) or forensic investigations happening at the GCIS at the moment?

Ms A Mthembu (ANC) congratulated the Department for its concise presentation, and was glad to see that the GCIS had a clear plan on gender-based violence.

Ms Williams responded that all the investigations into cases of corruption had now been concluded. There would always be cases that would undergo a re-investigation process after a 12-month period. She assured the Committee that any matter of corruption would be recorded and flagged in the GCIS’s book. In addition, it discussed grey areas continuously with the auditor in order to prevent possible corruption loopholes. It was a continuous process with GCIS’s internal auditors in identifying and closing gaps to deal with corruption at the entity. It was currently discussing with its internal auditors what the possible loophole areas for corruption were, so that they could be flagged and closed. She said there was no corruption that the GCIS was aware of.

She said two contractors had been appointed by the GCIS – Molibiz and Cut to Black. Both contractors had been appointed through an open tender process to provide additional capacity for the GCIS. Cut to Black assisted the GCIS in the television and radio space, and Molibiz assisted in the digital and social media space

Minister Mthembu explained that the outsourcing of contractors was a result of the lack of capacity for GCIS in creative space advertising.  The GCIS did not have these capacities, and they were particularly needed against the backdrop of COVID-19. He stressed that the GCIS needed to keep up with social media and the digital world so that people could receive the government’s information.

He assured the Committee of the GCIS’s determination to fight corruption.

South African Post Office (SAPO): Corporate Plan 2020/21

Deputy Minister’s opening remarks

Deputy Minister Kekana acknowledged the dire budget situation, and pointed out that COVID-19 had further exacerbated the constrained budgetary concerns. SAPO had received a directive from the National Treasury that it was due for R250 million provisional tax after the separation between SAPO and the Post Bank.

She also informed Members of the high security cost for cash pay coins. It was costing more than R470 million. It was necessary for SAPO to act swiftly to implement an alternative cost effective measure to turn the situation around.

SAPO had been experiencing glitches on its website, which was part due to the instability of networks, so it had been engaging with Telkom to work out a solution. 

She described the business strategies to bring in more revenue for SAPO. Among these were E-commerce initiatives which were under way, and cashless Automated Teller Machines (ATMs), which needed to be rolled out to other provinces.

She informed Members of SAPO’s financial challenges and its problems with the Post Bank.

Ms Colleen Makhubele, Chairperson: SAPO, provided an overview of SAPO’s corporate plan. commenting that it had not deviated much from the one that was presented in the third quarter of last year. The plan was a sound one, but the challenge was about implementation.

The direct revenue loss as a result of COVID-19 would reach R798 million by the end of May.

The inputs offered by the Committee had been taken into account, and an in-depth assessment had been done to identify key financial risks and operational issues. One of the key challenges was the South African Social Security Agency (SASSA) platform for paying social grants.

It had been a bad decision by SAPO to carry the responsibility of paying SASSA grants, which included the security, the cash pay points and the dignity of services. This responsibility had not accrued profit for SAPO, but had rather resulted in a loss of R550 million. It defeated the purpose of the government to give the project to SAPO while other commercial banks were making a profit of about R1 billion per annum. To address the profit loss, SAPO had started its cashless ATM project in order to turn the entity into a profit-making business.

SAPO had lost R1 billion in revenue over the past four years, and it was estimated that an amount of R1.9 billion would be lost this year.

Ms Makhubele stressed the lack of adequate maintenance for SAPO’s infrastructure, and the high vacancy rate in critical positions in human resources.

SAPO had had to review some of the criteria that it had been using to rationalise post offices, and some offices in rural areas needed to be closed.

However, there had been a few notable achievements:

  • The SASSA platform been stabilised.
  • There were security costs which could save SAPO about R280 million by the end of the 2019/20 financial year;
  • It had finalised some reconciliations and recovered from service providers, saving significantly since it had started to modernise its system;
  • The cashless ATM initiative had also helped to address the challenge of SASSA;
  • It was partnering with the Department of Small Business Development;
  • Mobile payment points.

Ms Makhubele said that SAPO’s own operational system had been improved significantly with its SMS notifications, track and trace systems and online declaration system.

She assured the Committee that SAPO was open to new revenue generating platforms, such as the Programme of Cooperation (POC) project. Some residents in Johannesburg could pay for the bills via this programme, which was an initiative driven by SAPO in collaboration with the City of Johannesburg as a pilot scheme. The platform intended to deliver registered mail and municipal statements electronically. SAPO intended to roll this out to all municipalities as an initiative to generate additional revenue.

SAPO was also partnering with the Department of Health and Dischem to distribute medicines during COVID-19. It had also partnered with universities to distribute laptops to students.

The Chairperson concluded by informing Members that the filling of critical positions had almost been finalised.

Mr Ivumile Nongogo, Acting Chief Executive Officer (CEO): SAPO, outlined the key focus areas. These were financial sustainability, optimised assets and infrastructure, customers and communications, efficient systems and processes, digital transformation, culture of excellence, and corporate governance. SAPO was reviewing ways that could turn the entity into a profit-making organisation. Such ways included partnerships, as well as digitising many of its services to meet the demands of modern South Africans. COVID-19 had made SAPO realise the urgency for a structural shift to modern technology and digitisation.

Mr Phehello Tsotetsi, CFO, commented that SAPO had a history of revenue losses. In the 2020/21 financial year, it was estimated that R798 million revenue would be lost by May. It was projected that SAPO would lose R1.9 billion due to the impact of COVID-19.

The CFO informed Members that from 1 April, the Post Bank had been separated from SAPO. The Post Bank had a good assets record, and its separation from SAPO was a loss to SAPO’s assets. In light of that, SAPO had since requested the National Treasury to provide some relief to cover its projected R1.9 billion revenue loss.

Discussion

Ms Van Damme sought clarity on the R1.9 billion estimated loss due to COVID-19 - she wanted to know which budgetary items would incur that amount of loss.

She wanted to know more details of the investigation into the rape and murder or Uyinene Mrwetyana. How many employees currently employed at SAPO were ex-convicts, and in what positions were they working? She did not understand why the SAPO would allow ex-convicts to carry on working at the SAPO because it was very likely that they were high risk candidates for committing crimes.

Ms N Kubheka (ANC) agreed that the SAPO’s financial state was not good, but she was sceptical of the CFO’s remark that the R1.9 billion loss was due only to COVID-19.

She wanted to understand what the view had been when Post Bank and SAPO separated. Had it been that it would be easier for Post Bank to survive on its own?

She was pleased to hear about the filling of vacancies and the innovative ideas on cashless ATMs as a business idea to generate more revenue.

Ms Faku recognised the challenges faced by SAPO, and understood that it would take a long time to turn around. She requested a list of names of the resigning board members, and the reasons for their resignations. Since Post Bank was now separated from SAPO, would it survive on its own? She wanted the SAPO to provide with more background on PostNet and the Post Bank. She suggested the Post Bank should expand its service to rural communities.

Ms Majozi expressed her concern over SAPO. The Committee needed to hear what the new strategies were that this board had drafted to make SAPO survive. She remarked that entities always came to present their operational and budget plans to Parliamentary committees, yet they were still failing. She wanted to know more concrete outcomes that the Committee could expect from the SAPO. 

SAPO’s response

Deputy Minister Kekana said that one of the critical issues that SAPO had demonstrated so far that it could use to turn things around, was its plan to go digital, get involved in e-commerce and expand cashless ATMs. These were business strategies to indicate that SAPO had the capacity to contribute to township and village economies. The successful roll out of the cashless ATM service in Rustenburg was an example to show that SAPO was capable.

Ms Makhubele explained the three board members’ resignations.  There was nothing sinister, as they had all resigned to take up positions and appointments with more responsibilities. Dr Charles Nwaila had been appointed as chairperson of the National Skills Audit by Minister Blade Nzimande; Adv Rasethaba had been appointed to chair the Road Accident Fund by Minister Mbalula, and Mr Kgosie Matthews had been appointed a counsellor of the Independent Communications Authority of South Africa (ICASA) board by Minister Ndabeni-Abrahams.

Mr Nongogo referred to the Mrwetyana rape and murder report. Although SAPO did not wish to go to litigation, it looked like the matter was headed that way. An investigation had shown that 174 out of 3 000 SAPO employees had criminal records. The average time between their convictions to their time of service at SAPO was around 15 years. Many of them were in mail and branch environments. It was difficult to bar them from employment or to take any action against them once they had served their sentences, as there was no existing legislation that SAPO could use to do that. What SAPO could do was to remove them from certain areas of service that could put their customers at risk. He asked Members to be mindful that although those employees had conviction records, they were nevertheless protected by labour legislation. The SAPO currently was reviewing on a case-to-case basis those employees who had convictions for aggravated assault, theft, murder and attempted murder, in order to determine what SAPO should do with them. Currently, 70 cases had been reviewed and the process should be completed by June.

On Post Bank’s ability to survive, the SAPO had done an impact assessment on the issues that were going to impact SAPO after the separation. It was clear that SAPO’s balance sheet was good, but Post Bank had a much stronger income statement than SAPO, so when Post Bank had been separated from SAPO, it had left SAPO’s balance sheet weak. In light of that, SAPO had proposed two options:

Option 1:

Remove all assets that belonged to Post Bank across to Post Bank, and SAPO be compensated the equivalent amount.

Option 2:

Retain SAPO’s 100% Post Bank shareholder position, which would strengthen SAPO’s asset value.

Mr Nongogo said PostNet had been started by SAPO, and operated as a franchise of SAPO. Over a period of time, PostNet had failed to honour its commitments, which had resulted in some litigation which had commenced from 2002. The principle which had caused the dispute between PostNet and SAPO had been the interpretation of the ICASA Act and the Post Office Act, which stated that only South African post offices could move items, parcels or small parcels in the range of 0-1kg. He was of the view that a range of courier services were transgressing on those Acts. The Complaints and Compliance Committee (CCC) had ruled in favour of the SAPO’s interpretation, but this ruling was now being challenged by the South African Express Parcel Association. He stressed that this was an area in which the SAPO was losing revenue, because it had been reserved specially for SAPO and there should not be competing players in this business.

To ensure SAPO survived, it first needed to stabilise its operational finance or recapitalise; secondly it needed to ensure its workforce was adequate to achieve the entity’s objectives; and thirdly, it needed to make sure that the services it provided were what modern South Africans needed.

Mr Tsotetsi said that the SAPO had done a lot to enhance its audit in this financial year, but there were still a few systems that it was working on. He hoped the audit would be finalised around August.

Regarding the R1.9 billion loss, he explained that due to the nature of SAPO’s operation, its revenue was dependant mainly on postal services. If an organisation had a cash flow shortage from the previous financial year, a loss of more than 8% of revenue in a month deepened that crisis. Besides the loss of mailing revenue, SAPO had also experienced a significant loss of walk-in and transacting customers. The R1.9 billion was a projection for the year. The actual figures were R464 million lost from March to April, and the loss was projected at about R798 by May.

Ms Makhubele corrected her statement that Mr Mathews had resigned and been appointed to a position on the ICASA board. He had been nominated and interviewed, but had not been appointed yet.

Ms Faku said SAPO needed to focus on what they had and implement their strategic plans. She appreciated the filling of vacancies. She recommended that SAPO focus on e-commerce, and said there was a need to rebrand SAPO to attract more customers.

The Chairperson wanted SAPO to provide a timeline for filling those vacancies, as competent leadership was important.

Deputy Minister Kekana said she appreciated the Committee’s input. She hoped that the Committee could see SAPO’s commitment to ensure it was moving swiftly to stabilise the entity. She acknowledged that there would be issues to look at, such as the board of SAPO and the board of the Post Bank, and to improve the SASSA situation.

The Chairperson of SAPO commented that she would review with the board the question around what would be needed for SAPO to survive, and would report back to the Committee.

Ms Faku wanted to know if post offices used locally-registered South African spaza shops to roll out cashless ATMs.

Ms Van Damme emphasised that people who committed aggravated crimes such as rape and murder should not work at the post office.

The Deputy Minister said that all the spaza shops in villages where the SAPO used them to roll out its cashless ATMs, were registered with the Department of Small Business Development (DSBD). The local municipality could confirm to that. There had been collaborative work between SAPO, the DSBD, the mayor of Rustenburg, and the Department of Monitoring and Evaluation within the presidency.

Mr Nongogo commented on convicts working at SAPO, saying that the matter was complicated. There were scenarios in which some had been employed for more than 20 years, with a record for murder in the 80s and 70s, or perhaps even further back. They had served their time. Should one fire them because of a crime committed 30 years ago, for which they had served their sentences, because they were regarded as having a predisposition to cause harm to others? There was conflicting legislation around this area, and the Labour Relations Act did not permit firing them. SAPO was looking at the situation on a case-to-case basis.

The meeting was adjourned.

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