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Will selling postal service secure its future?

By Frankline Sunday | November 10th 2015 at 00:00:00 GMT +0300

With a history that dates back to the 17th Century, the Postal Corporation of Kenya (PCK) is the country’s oldest formal institution and an unrivalled treasure trove of information.

But today, after five colonial and post-colonial administrations, and four post-independence regimes, PCK is staring at an uncertain future as rapid technological advances and a liberalised market eat into its core business and threaten its survival.

Industry data from the Communications Authority of Kenya (CA) and economic studies paint a picture of PCK’s slow and steady descent into virtual stagnation that has been worsened by the Government relegating the institution to the margins of its priority list.

In 2008, PCK was raking in Sh13.9 billion in annual revenues from sending letters and parcels, and a nascent money transfer and banking business.

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Over the last seven years, however, its revenues have dropped almost five-fold and as at 2014, PCK managed to bring in Sh3.6 billion in revenue.

Subsidised prices

The main challenge for PCK is its mandate as a State corporation. A post office is supposed to be one of the most basic pieces of infrastructure Kenyans have access to, regardless of location or economic standing.

In fact, PCK is mandated by the Postal Corporation Act of 1998 to facilitate the sending and receiving of letters less than 350 grammes at subsidised prices. Any other provider that seeks to enter this space is expected to price its services up to five times higher to give Posta the price advantage.

But to facilitate this universal service mandate, PCK has to contend with unviable outlets that bleed the company Sh650 million of taxpayers’ cash each year. This is money the management says could be better spent on more strategic ventures.

“We have outlets that are commercially unviable ... but because of our universal service obligations, we have to keep these post offices open even if no one is using them,” said Postmaster General Enock Kinara.

In addition, PCK’s nature as a State corporation means it cannot execute drastic turnaround strategies without consulting the Treasury.

This has made it nearly impossible for the company to trim its wage bill through a staff rationalisation programme that would greatly reduce operational costs.

The Government, on the other hand, contends that the current market environment has made it difficult to maintain the protectionist policies that ensured PCK’s competitiveness before telecommunication was liberalised.

“With the number of providers in the market, it is not always certain that we will be able to enforce some of these policies 100 per cent,” said CA Director General Francis Wangusi.

“I think it would be best for PCK to divest into other areas outside its key mandate, and we have already seen them starting to do this.”

Changing times

PCK has indeed tried to reinvent itself in response to the changing times. The transformation of some post offices into Huduma Centres has helped utilise idle infrastructure and capitalised on its unrivalled branch network.

Last week, the company presented a three-pronged strategy to boost revenues to pre-mobile era figures. Through exploiting e-Commerce, money transfer and a digital home delivery system for letters and parcels, the firm is expecting to grow revenues to Sh14 billion by 2018.

Other innovative services on offer include the provision of relocation services — primarily targeted at university students travelling home for the holidays. PCK will pick students’ luggage from hostels, and drop it at post offices nearest to them.

However, with new service providers being licensed each year, the State mail service is struggling to turn a profit as margins remain depressed and costs pile up.

Further, the new Companies Act removes the necessity for companies to send paper mail as correspondence to shareholders and customers, taking away a huge chunk of PCK’s revenue stream.

The Government’s adoption of digital payments and processes, including among utility companies, has also led to a drastic cut in the amount of paper mail changing hands.

The focus is now turning to the possibility of privatising the institution, as was the intention 20 years ago.

Kenya’s communications system was liberalised in 1998 in line with recommendations from the International Monetary Fund (IMF).

The idea was to limit State involvement in the economy, which was seen as a major factor behind the country’s economic slump in the late 80s and 90s.

The Kenya Posts and Telecommunications Corporation (KPTC) was thus split into three entities: Telkom Kenya, Communications Commission of Kenya (now CA) and PCK.

“Legislation will be presented to Parliament in March 1996 seeking to split KPTC into three separate entities: posts, telecommunications and a regulatory authority,” reads the Kenya economic reforms policy framework dated 1996.

“The Government will open to outside investors at least 30 per cent of the capital of the new telecommunications entity through the participation of a strategic investor and through public flotation. The entity will also engage in joint ventures with private investors in activities such as cellular telephones,” the paper reads.

While significant developments have been realised in the other former affiliates — Telkom Kenya (and by extension Safaricom) and CA — PCK remains the only communications organ yet to embrace new-age business models, and finds itself stuck in a legislative regime set up before mobile phones were a reality.

Dr Kinara said there is no case to be made for the privatisation of the country’s postal system, and that the current challenges are just a bump in the road.

“The challenges we are having will not be solved by privatisation, and I believe that with the strategy we have spelt out, we are awake to exploit the digital opportunities available,” he said.

Kinara added that the postal system in developed markets like the United States are state run and face the same challenges, but still manage to adapt and run viably.

“What we need is to have the Government step in and help cushion the firm against high infrastructure costs,” he said.

“The national addressing system is an infrastructure amenity just like the port and the SGR. Why should we have a strong port and rail system while we do not have the network to deliver goods to businesses and homes at the last mile?”

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Postal Corporation of Kenya Communications Authority of Kenya Francis Wangusi
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