Public Disclosure Authorized

The Postal Sector in Developing and Transition Countries

Public Disclosure Authorized Contributions to a Reform Agenda

Edited by Pierre Guislain Public Disclosure Authorized

September 2004

The World Bank Group Global Information and Communication Technologies Department, Policy Division Public Disclosure Authorized

The Postal Sector in Developing and Transition Countries Contributions to a Reform Agenda

Edited by Pierre Guislain September 2004

The World Bank Group

Global Information and Communication Technologies Department, Policy Division

i THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Acknowledgements

This report was prepared by a team including Boutheina Guermazi, Pierre Guislain, Juan Ianni, Charles Kenny, Graeme Lee, and Isabelle Segni. Valuable contributions and comments were received from our reviewers and colleagues in the preparation of this document. Thanks go to Anat Lewin, Gareth Locksley, Paul Noumba Um, Christine Zhen-Wei Qiang, Andrea Ruiz-Esperza, Peter Smith, and Svetoslav Tintchev (World Bank), as well as Alex Dieke (WIK), Bob Cohen (US Postal Rates Commission), and the staff at Frontier Economics. Special recognition to Mark Andrew Wahl for the cover art and interior layout.

Disclaimer

This report was prepared by staff from the World Bank Group’s Global Information and Communi- cation Technologies Department. The findings, interpretations, and conclusions expressed herein do not necessarily reflect the views of the Board of Executive Directors of the World Bank or the govern- ments they represent.

To request additional copies of this report please contact the Global ICT Department, World Bank, 2121 Pennsylvania Ave., NW, Washington, D.C. 20433, USA; email: [email protected].

ii Table of Contents

Foreword ...... iv Chapter 1: Introduction ...... 1 Chapter 2: Reinventing the Post Office By Pierre Guislain and Graeme Lee ...... 5 Chapter 3: What Drives Postal Performance – A Cross-Country Analysis By Charles Kenny ...... 16 Chapter 4: Questioning the Monopoly-Supported Postal USO in Developing Countries By Charles Kenny ...... 29 Chapter 5: Postal Policy and Regulatory Reform in Developing Countries By Boutheina Guermazi and Isabelle Segni ...... 42 Chapter 6: Case Studies By Isabelle Segni and Juan Ianni ...... 52 Morocco ...... 53 Tanzania ...... 59 Trinidad and Tobago ...... 66 Chapter 7: Conclusion ...... 72 Bibliography ...... 75 Authors ...... 78

iii THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

From the Editor

The World Bank Group has been involved in This compilation was prepared as a contribution postal sector reform for over a decade. At present, to the Universal Postal Union’s 23rd Congress we support reform in about 25 countries in all (Bucharest, September-October 2004) and its regions of the world, with special emphasis on World Postal Strategy Forum. It includes sev- Africa and Latin America. During this decade, eral articles addressing key issues postal the sector itself has changed significantly. The policymakers, regulators and operators are fac- erstwhile paradigm of public sector monopoly ing today. Each chapter looks at the reform pro- justified by the need to deliver and finance spe- cess from a different angle, and the views of the cific universal service obligations is crumbling various authors do not always coincide. under the dual forces of competition (from other providers of postal services as well as substitute Several challenges exist to rigorous research and services such as electronic communications) and policy analysis on the postal sector. These in- fiscal restraint. clude the confusion surrounding the use and scope of the terms postal sector or services, as well as The postal sector has started a transition process the paucity of data and benchmarks on sector witnessed before in telecommunications and other development. While information on the perfor- network industries, from state monopoly to pri- mance of postal incumbents or operators is al- vate-sector-led competition. We are only in the ready limited and uneven, information on other early stages of this process and no clear models sectoral actors is quasi non-existent in any stan- or consensus have yet emerged as to the best route dardized or consolidated format. This is an area to follow, in particular in developing and transi- where the UPU and its membership could pro- tion countries. While sector reform in telecom- vide an increased and much needed contribution. munications started over 20 years ago and is still in process, time is running out for the postal sec- We hope that this compilation will provide a use- tor and reforms will need to be implemented at a ful contribution to postal sector reform in devel- faster pace if the sector is to be saved from irrel- oping and transition countries and welcome com- evance. ments and suggestions.

Pierre Guislain Manager, Policy Division Global Information and Communication Technologies Department The World Bank Group

iv INTRODUCTION

Chapter 1 Introduction

he scope of the postal sector broadly cov- At the same time, it is clear from the evidence ers pick-up, transport and delivery of presented in this compilation that in many de- Tletters and parcels, post office counter veloping countries the postal sector is far from services related to letter and parcel delivery, and healthy. The sector, and in particular the in- other related services such as mailbox rental (see cumbent post office, is characterized by low vol- Box 1). At the same time, post offices (the in- umes, poor quality of service, and weak finan- cumbent operator that provides postal sector ser- cial performance. In the majority of developing vices, usually under legal monopoly) often offer countries both the postal sector and the post a range of services outside of the postal sector— office urgently require reform—from the level pensions payments, telephone or Internet access, of policy, through regulation, and to corporate financial services, and retail services for example. restructuring.

Postal services have existed for over two thou- The papers in this collection suggest the extent sand years and have historically been important of the policy, regulatory and corporate reform to the development of nations. The Roman postal agenda in improving the performance of the service, the cursus publicus, used a network of postal sector in developing countries, as well as messengers carrying mail up to 80 kilometers per some approaches to such reform. At the same day; illegal use of the postal system was punish- time, the papers suggest that the future of the able by death. The modern postal service goes post office in developing countries as a viable back to 1840 when the stamp was introduced in business, rests in part on the provision of a range Great Britain. The Postal Sector in Developing of services that extend far beyond the postal and Transition Countries reports on several em- sector. pirical studies that posit a link between postal sector development and broader development progress.

1 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Box 1. Defining the Postal Sector

Webster’s provides an interesting word history for sale of postage stamps. This class excludes postal post: “The word post, meaning “mail”, is ultimately giro and postal savings activities, and other financial derived from Latin ponere, “to place, put in posi- activities carried out in combination with postal ac- tion.” This meaning of the word post was a result of tivities.” Courier activities other than national post the method of delivering mail. In the 16th century, activities includes “pickup, transport and delivery of horsemen were stationed at designated places along letters and mail-type parcels and packages by firms certain roads to ride in relays, with royal dispatches other than national post. This class excludes similar and other papers. These couriers were called “posts.” activities carried out by the national postal author- As the system of mail delivery expanded during the ity.” The distinction between postal and courier ac- next two centuries, post was applied to a delivery of tivities is highly interesting as it is based more on the mail and then to the organization responsible for the provider of the service than the activity itself, which entire system of delivering mail.” “In Middle En- is unusual for an ISIC classification. glish times the word mail meant simply “bag,” espe- cially one used by a traveler for provisions. Such There is a somewhat indistinct border between the bags were used to carry letters, and the word mail postal and logistics sectors, with the postal sector tend- eventually came to designate the contents rather than ing towards ongoing collection and delivery networks the container.” providing services covering comparatively small items to a wide population base while the logistics sector is The United Nations International Standard Industrial characterized by point-to-point deliveries of bigger Classification, Rev. 3.1 (ISIC), breaks the “post and items to and from a comparatively small base of large courier activities” sector (group 641) down into “na- customers. The definition of logistics provided by tional post activities” and “courier activities other than the WTO is as follows: “Logistics deal with the sup- national post activities.” National post activities in- ply chain process that plans, implements, and con- cludes “pick-up, transport and delivery (domestic or trols the efficient and effective point-to-point flow and international) of mail and parcels; collection of mail storage of goods, services, and related information, and parcels from public letter-boxes or from post throughout the production, distribution and delivery offices; distribution and delivery of mail and parcels; stages, from the initial suppliers of inputs to final mailbox rental, poste restante, etc.; mail sorting; and customers of products.”

What do the papers suggest about the nature of about 100 letters per capita, per year in the postal sector and the incumbent postal op- countries with GDPs per capita over $5,000. erator in developing countries? n The quality of service provided by the in- cumbent operator is often poor. Trust in n Postal volumes in poorer countries are low. the postal sector is low and legal universal Questioning the Monopoly suggests that, service obligations (requiring letter deliv- on average, countries with GDPs per capita ery to all citizens at a given quality) are far below $1,000 see fewer than one letter per from being met by the incumbent (Postal capita, per year delivered, compared to Policy and Regulatory Reform and Ques- tioning the Monopoly).

2 INTRODUCTION

n The efficiency of incumbent operators is for more open competition. The discussion of weak. Questioning the Monopoly suggests Tanzania in the Case Studies suggests that in- that developing countries deliver perhaps creased competition can be introduced in tandem one-tenth or fewer letters per employee than with operator reform to strengthen overall sector developed countries. performance. It should be noted that the papers take different positions on the speed of reform n While most postal sectors have a significant towards competition. Questioning the Monopoly de jure monopoly in place covering letter de- suggests an immediate opening to full competi- livery (frequently up to 1 kg), de facto the tion, while Postal Policy and Regulatory Reform position is one of competition. Postal Policy suggests a more gradual approach modeled on and Regulatory Reform suggests that the low the European Union’s experience. quality of incumbent service has driven many businesses to provide their own postal ser- Along with competition comes an increased need vices to deliver bills, for example. for regulatory instruments to ensure that compe- n The financial situation of the incumbent tition is fair. Postal Policy and Regulatory Re- operator is dire. Postal Policy and Regu- form discusses the General Agreement on Trade latory Reform suggests cumulated losses of in Services’ Reference Paper on regulation as a incumbents can run as high as 2 percent of useful set of guidelines for the design of a regu- GDP, and that three-quarters of African latory framework in the postal sector. public postal operators report a negative net financial position. As part of policy and regulatory reform, it is also important that the universal service obli- These linked problems suggest the urgent need for gation is revisited. The demand for postal sec- reform, and the conclusions drawn by the papers tor services is highly correlated with income. might be usefully divided into those that suggest a What Drives Postal Performance suggests that policy and regulatory reform agenda for the postal about 73 percent of the variation in letters per sector, those that look towards the restructuring capita across countries can be predicted by of the post office to better provide postal services, variations in GDP per capita. Questioning the and those that discuss an expansion of the post Monopoly notes that, even in the best of cir- office into new sectors or activities. cumstances, demand for postal sector services especially in the rural and remote areas of de- The papers are all agreed that the broad approach veloping countries will remain low. The paper to policy and regulatory reform should involve suggests that given the limited demand for uni- greater competition and a reduction of the mo- versal postal service, along with limited finan- nopoly as well as improved regulation and a re- cial capacity to support its provision, it might definition of the universal service obligation. be abandoned in developing countries, to be re- Reform to allow de jure competition has an im- placed by a government commitment to provide pact even though (as we have seen) de facto com- a range of services in greater demand by poor petition is frequently widespread. Postal Policy people. At the least, as suggested in Postal and Regulatory Reform notes that the Chinese Policy and Regulatory Reform, the level of ser- express mail segment might triple in value under vice demanded of the incumbent should be ad- an improved regulatory environment that allowed justed to be financially feasible.

3 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Regarding incumbent reform, the inefficiencies In sum, the papers suggest that in developing in most incumbent post offices suggest that there countries there are benefits to be reaped by re- is no necessary trade-off between reducing in- form of the postal sector and of the post office. cumbent losses and delivering improved ser- Given the weak state of sectors and incumbents vices. Both the Case Studies and the cross-coun- in many countries today, reform will frequently try analysis carried out in What Drives Postal be able to deliver more widespread quality ac- Performance suggest that reformed post offices cess to a greater range of services in higher de- can deliver more post with greater efficiency and mand by poor people in particular, while reduc- reliability all while reducing the need for finan- ing the drain on government revenues. All of this cial transfers. Reform techniques discussed in- might deliver considerable improvements in eco- clude management and performance contracts nomic performance, income generation, and the as well as franchising retail outlets. Experi- quality of life in developing countries. ence suggests that capacity building is a key success factor in restructuring the incumbent, together with improved accountability, and gov- ernance mechanisms.

Reinventing the Post Office and Questioning the Monopoly discuss the potential for the post of- fice to provide more and different services. Given a limited demand for letter services in poorer de- veloping countries, but a significant and geo- graphically widespread demand for a range of services from other sectors including retail, financial and government services, the future of the post office may rest in provision of those other services. A global network of 700,000 post of- fices suggests considerable reach for their deliv- ery, argues Reinventing the Post Office.

Whatever this potential role, expanding the range of services delivered by post offices clearly be- longs at the end of a sectoral and corporate re- form agenda which sees the emergence of a com- petitive sector and an efficient incumbent. Fur- thermore, if the service delivery involves an ex- plicit or implicit government subsidy to extend access, Questioning the Monopoly argues that a careful economic analysis of the benefits of the service, as well as a transparent and nondiscrimi- natory award of the subsidy would be important components of a new universal service agenda.

4 REINVENTING THE POST OFFICE

Pierre Guislain Graeme Lee

Chapter 2 Reinventing the Post Office

odern postal services have been pro- service obligations (USO). These issues are cov- vided for well over a century by post ered at greater length in chapters 4 and 5 of this Moffice administrations in virtually ev- publication. ery country in the world. Today the future of these postal offices is in question in many devel- oping and transition countries.1 Traditional postal The Postal Dilemma services (mail and parcels) remain their core prod- uct, but cannot by themselves cover the costs of Of the 1.2 billion items posted daily worldwide, post office networks. A more dynamic post office the United States Postal Service (USPS) handles requires a management structure with the freedom almost 50 percent with an average of close to 700 and incentives to increase efficiency, client orien- items per capita, per annum. Yet 25 percent of all tation and innovation. Several approaches for in- countries generate less than one item per capita, creasing the flexibility and dynamism of post of- per annum, and 50 percent of all countries gener- fice management are described in this paper. ate less than 10 items. These low volumes prevail Longer term sustainability may involve: in-depth even in countries with considerable post office net- restructuring and corporate reform; a smaller post works, which were developed when mail was the office-owned network supplemented by private- main communication mode and maintained in an public partnerships and franchising schemes; di- attempt to meet USOs.2 As an example, the versification of services with post offices serving Maldives has a post office for every 1,500 people, as a platform of service delivery for private sector with each office handling an average of only two partners; and provision of a broader range of gov- mail items per day (compared to France which ernment services. Such transformation will also has a post office for every 3,000 people, with each require changes in policy and regulation regard- post office handling on average 5,500 mail items ing the scope of the monopoly and of the universal per day). Over 50 percent of all countries average

5 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

less than 200 items per post office per day. 3 Post in remote areas. Politicians, employees, and the office networks can only be sustained on such low public-at-large know reform can lead to a reduc- volumes with significant transfers of scarce gov- tion in post office jobs and closure of some post ernment resources. offices. Trade-offs need to be made. Do they want to serve rural areas with limited demand Mail volumes are highly correlated with per capita for postal services ? If so, how will this be funded, GDP (see chapter 3) and developing country post and are government or politicians willing to allo- offices may thus expect future increases as their cate scarce budget funds to support this pres- economies grow, through this may arrive too late ence? Are politicians willing to forgo the oppor- for many of them. Indeed, global trends are not tunity for patronage, too often provided through particularly encouraging for developing country post postal employment? offices, as competition from email and the Internet is cutting down on traditional mail volumes, and Where the will to reform exists, governments must competition from couriers and express carriers is be ready to tackle resistance to postal reform. putting pressure on their parcels business. Postal reform may indeed lead to staff reductions, closure of post offices, and changes in the status The desire to ensure widespread access to the post of employees. But it should also lead to improved office network (as embodied in USOs in many productivity, performance, customer and em- countries), combined with very low demand for ployee satisfaction, and in the longer term new the core service provided by that network, is a di- jobs. Post office closures can be mitigated lemma facing most of the developing world’s post through franchising post office services in rural offices. The main options in the struggle to over- areas leading to better access to customers. Staff come this dilemma are greater efficiency in net- reductions can be managed in a gradual way, work and service provision, more commercial ap- starting with early retirements and voluntary sepa- proaches and innovative product development, as ration packages, for example. Staff may for in- well as greater use of that network. Reinventing stance be encouraged to leave the post office ranks the post office encompasses these various dimen- to establish franchise operations, with initial sup- sions and requires significant policy and regula- port from the post office. tory reform (see chapter 5 on postal policy and regulation). This paper focuses on the post office itself, rather than on the postal sector, and looks at Restructuring the Postal the main business and organizational models that Incumbent can structure a modern postal enterprise, and at the scope of services and business lines that post Until recently the postal sector was among the offices can offer or deliver. few sectors where little attempt was made to at- tract private sector involvement. It was only to- wards the end of the 1990s that privatization was Is there Political Will to Reform initiated in countries such as Argentina. Market the Post Office? liberalization has been undertaken at an even slower pace and many countries still cling to the The Post Office is a large employer in most coun- traditional public sector monopoly model. tries and sometimes the sole presence of the State

6 REINVENTING THE POST OFFICE

Figure 1. Legal structure of incumbent operator

Public Administration Statutory Corporation Public Company Private Company

Post office as a Post Office organized Post Office organized Post Office organized as government department, as a statutory under company law, a company, fully or entity or public agency corporation under typically as a limited partially privatized; may public law liability company be publicly quoted on a stock exchange

Public Law Private Law

Public Ownership Private Ownership

Globally, postal sector reform and post office tives, over-employment, inefficient operations, corporate reform tend to be in their early stages; and tariffs (at best) cover only operating costs the record of reform attempts to date is some- leading to no investment. The network is typi- what mixed and best practices have not yet fully cally fully owned and operated by the post of- emerged. Nonetheless, reform experience tends fice, poorly equipped and under capitalized, and to suggest that, in common with other sectors, retail outlets lack technology. Marketing and greater private participation in the postal sector customer service are not emphasized leading to can improve the quality and efficiency of service poor brand image and falling volumes. delivery. Commercialization is a necessary part of this process involving greater customer orien- tation, introduction of commercial and account- Effective Corporatization and ing practices, enhanced professionalism of staff, Commercialization a focus on profitability, and more generally the development of a business culture. In order to increase efficiency of the postal ad- ministrations, corporate reform usually starts Today many incumbent post offices in the devel- with a change in the legal structure moving from oping world remain postal administrations, often public administration to statutory corporation, departments of a ministry that may also include and subsequently to a publicly or privately owned communications, telecommunications or trans- limited liability company (Figure 1). port. They lack appropriate accounting proce- dures, operate from a government-defined bud- While the legal transformation from a govern- get and are usually loss making, although profits ment bureaucracy to a company operating on a and losses are often difficult to determine due to commercial basis is necessary for successful post the lack of commercial accounts. Political inter- office restructuring, it is not sufficient and needs ference tends to be high with political appointees to be accompanied by a strong commercializa- managing the organizations. There is frequently tion effort by introducing commercial objectives a lack of management accountability or objec- and practices into management and operations

7 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Box 1. Correos de Chile In Chile, postal reform has been ongoing since 1982, when Correos de Chile became a statutory corporation governed by a board of five non-executive directors designated by the government through the board of the Sistema de Empresas Estatales. The Correos board meets twice a month, selects the CEO, establishes the strategic plan and supervises the administration of the enterprise. Employment contracts are governed by the labor code.

Between 1982 and 1989 the postal network and staffing were restructured to improve productivity and to more closely respond to market demand. From 1989, the reform of the postal operator has focused on creating a market and customer driven culture, which has included the forming of commercial alliances with the private sector and significant product and service diversification. In October 2002, over 300 rural postal outlets were franchised to reduce costs and extend service hours. In 2003, Correos de Chile delivered a return on equity of 11 percent after paying 57 percent tax on profits (17 percent general tax and 40 percent tax applicable to state owned enterprises).

and establishing a business culture in the postal ability company is an essential step in reforming enterprise. This may also include greater pri- the incumbent. This includes among others, sepa- vate sector involvement through outsourcing, sub- rate budgets and accounts, creation of a board of contracting and franchising activities to private directors, application of commercial and labor companies. laws, and so on.

While reform is seen as a necessity to improve the A useful tool to monitor the performance of the viability of the postal incumbents, there is no simple state owned postal operator is the performance universal blueprint. Indeed, one of the most suc- contract by which the government and the postal cessful postal operators in the world, the United operator negotiate and agree on objectives and States Postal Service (USPS), remains a public the means to reach them (see Box 2). Typically administration but operates in a commercial man- performance contracts deal with: (a) legal and ner. In the case of USPS, governance reform is institutional changes; (b) economic regulation not likely to take place in the short term but that such as tariffs, price caps, salary increases, and does not stop them from outsourcing and sub-con- employment targets; (c) scope of universal ser- tracting key elements of their work to the private vice, and subsidies to compensate for their cost; sector. Correos de Chile, which was transformed (d) financial commitments to increase capital or from a public administration to a statutory corpo- provide loan guarantees; and (e) financial and ration in 1982, is another example of a postal op- operational performance targets (revenues, cost erator that has applied the principles of commer- reductions, productivity, quality of service and cialization (see Box 1). customer satisfaction, etc.). They tend to be an excellent tool to track success in efforts to im- Moving from a postal administration to a com- prove public sector performance, but typically mercial organization and transforming the post lack the incentives needed to make significant office into a statutory corporation or limited li- improvements or sustain them.

8 REINVENTING THE POST OFFICE

Box 2. Performance Contracts In Tanzania, reform of the postal operator began in 1994 with the creation of Tanzania Posts Corporation (TPC), Tanzania Communications Commission (the regulator), and a clear definition of responsibilities be- tween government, regulator and operator. TPC operates under a performance contract with incentives and penalties for achieving and failing targets. The reform has resulted in a viable postal service in one of the poorest countries in the world, with increased access and diversification of services. Market liberalization has taken place and new licensed competitors are now operating within Tanzania.

In Morocco, Barid Al-Maghrib (BAM) was established as a state-owned company in 1998, and has since been constantly profitable, funding its own retrenchment plan and investments. A performance contract was signed with the State. BAM has entered a number of partnerships with private sector firms.

See chapter 6 for more details.

Establishing the post office as a limited liability Management Contracts and company also gives the government the option of Concessions selling shares to private investors, since the com- pany is already established under company law A number of governments have opted for a man- (see section on privatization below). agement contract to rapidly (and drastically) im- prove the operations and the financial perfor- Private sector participation can also be devel- mance of the postal incumbent. Trinidad and oped through outsourcing non-core activities, Tobago and Guatemala offer good examples of franchising retail outlets and providing third party such a scheme (Box 3). services through postal outlets. Non-core activi- ties such as staff restaurants and cleaning ser- Although management contracts do not involve vices can easily be outsourced. Building owner- as strong incentives than would be the case with ship and maintenance are another example. private ownership and investment, they can be a Postal office buildings can even be sold to an- good way to achieve a quick transformation of other company and leased back (be it in part) to the postal operator through the introduction of the core business. Even core functions such as experienced and focused management. The two transport services can be provided by third par- management contract examples shown in Box 3 ties who can share logistics costs and reduce were very different in concept but resulted in simi- postal fleet costs. In a number of countries, fran- lar transformations. The key to the success in chising has led to a significant increase in access both was the incentives given to the management points in rural areas. Provision of non-postal contractors. In the case of Trinidad and Tobago, services on behalf of other companies is a useful the contractor was paid for performance in five way of generating additional income and expand- key areas, whilst in Guatemala the contractor re- ing the scope of the postal retail service, as fur- ceived payment for every universal service letter ther discussed below in the section on diversifi- posted, a clear incentive to increase mail volumes. cation.

9 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Box 3. Management Contracts Trinidad and Tobago outsourced the management of TT Post to help transform the company into a commer- cially focused business which the government could later privatize. In a two-phase reform process the initial focus was on the rehabilitation of the incumbent postal operator through a delegated management arrangement (DMA), a five-year management contract. Payment of the fees of the DMA was related to the achievement of five key performance targets in the areas of: customer satisfaction, universal delivery, quality of service, total revenue, and net income. Four of the five targets have been met with substantial increases in volumes, revenues, and delivery, significant improvements in customer satisfaction and quality, but TT Post has not yet achieved a positive net income. See “Case Studies” for more on Trinidad and Tobago’s reform.

In Guatemala a management contract was awarded in 1998 to take over the management of the postal service. The contractor had an obligation to provide a basic service for letters weighing up to 20 grams. In return the contractor received a government subsidy per item, and had exclusive rights to the postal network which was used as a platform to provide other services. The management contract resulted in increased volumes, improved quality and efficiency, and a reduction in subsidies paid by government. The success of the management contract led to the signing of a 10-year concession agreement in May 2004. The agreement changes the method of paying for the USO, and a regulatory function is being established to regulate all operators in the market.

Concessions are another approach to introduce ingredients to a concession agreement are clear private participation by providing a private com- service targets and access goals. pany with the right to operate the postal enter- prise at its own risk for a fixed period. In return the concessionaire commits to investing in the Privatization company and to the provision of specified ser- vices. The most cited example of concessions in The final step of the reform of a state-owned en- developing countries is Argentina (Box 4). terprise may lead to privatization. This gener- ally includes the transfer of ownership from the Despite the recent failure of the Argentine con- public to the private sector through the sale of cession, the concept remains an attractive way shares. The German and Dutch post offices are of introducing private sector participation in the among the few examples of privatized postal postal sector. The key ingredients to successful operators. concessions are to ensure that the government, the concessionaire and the customers all benefit An initial 29 percent of Deutsche Post shares were from the concession agreement. The recent Gua- sold in November 2000 through an initial public temala concession is a good example. Govern- offering, allowing the government to maintain ment pays the concessionaire for the provision of control over the public operator, while introduc- universal service (per item) and in return receives ing a more commercially minded management struc- a percentage of all revenues. It also receives a ture. The diversification, growth and profitability fixed rental payment for postal outlets and build- of Deutsche Post since its IPO illustrate the oppor- ings and the rights to certain services. Other key tunities created by privatization. The German gov-

10 REINVENTING THE POST OFFICE

Box 4. Concession Contract in Argentina In Argentina, a 30-year concession was awarded in 1997 to operate the ailing and loss making postal operator for a concession fee of approximately $100 million per annum. Correo Argentino SA transformed the organi- zation, gave it a new corporate image, increased quality of service, diversified products and services, reduced employee numbers by 40 percent and invested over $350 million in the company. However, the major reces- sion that hit Argentina, the high price of the concession fee, the failure to properly assess the cost of the universal service requirement, the failure to regulate illegal competition, and difficulties in dealing with labor agreements ultimately led to the concession being revoked in November 2003 due to nonpayment of the fee. ernment still owns about 62% of the company (di- to political pressure. Implementing a successful rectly and through KfW), with over 37 percent freely divestiture will generally be more difficult for traded on the stock exchange. countries with limited postal markets and a weak incumbent. In developing countries, privatization TPG, the Dutch postal operator was privatized in a may not be attractive to the private sector with- process that began in 1994 when the government out significant prior restructuring of the business sold 30 percent of its share in KPN (the combined and the environment it operates in. In such cases, post and telecommunication holding company at the postal strategy should aim at optimizing the postal time), followed in 1996 by a second tranche of 25 system performance through management reform percent. In 1998, post and telecommunications and efficiency gains. activities were split and TPG demerged from KPN.

In Malaysia, Pos Malaysia was corporatized in Sustainability of Restructuring 1992. Shares in the company have since been sold with 30 percent owned by government, 15 percent Concessions, management contracts, and exter- by employees, and the remainder owned by a finan- nal consultants have been used to introduce man- cial services company. The Ministry of Energy, agement expertise and commercial practices into Telecommunications and Multimedia regulates tar- postal operators. They have led to significant iffs and international mail treaties, and the Malay- operational improvements in most cases. Whilst sian Communication Multimedia Commission regu- some may consider Argentina’s reform a failure lates Pos Malaysia and courier companies. Pos after the concession was revoked, the government Malaysia has a special license (through 2034) to has taken over a much improved operation which maintain the role of the universal service provider. is more customer focused and quality managed. The partial privatization has contributed to improved The Trinidad and Tobago operator is still not financial and operational effectiveness and the di- profitable, but 97 percent of the population now versification of products and services. receives daily delivery to their homes, compared to 50 percent in 1998. Both are in a far better situa- However, privatization may not be a feasible op- tion than they were prior to the process of reform, tion in many countries for political and opera- which is an important measure of success. Tanza- tional reasons. The privatization of the British nia and Brazil perhaps best demonstrate the key Post Office was prevented in the mid 1990’s due ingredients of successful reform (Boxes 2 and 5).

11 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Box 5. Postal Reform in Brazil Correios de Brazil is undergoing a commercialization process based on strengthening the postal operator’s ca- pacity and expanding the product offering through a wide range of joint ventures and partnership agreements. Correios de Brazil has a strong social obligation and has successfully introduced a range of financial services reaching a sector of society that previously did not have access to such services. Correios de Brazil is financially viable and has the highest rating of public services in the country with a 98 percent satisfaction measure.

Their reform contains the elements of private sec- Diversification tor participation, independent regulation, manage- ment accountability, and political commitment all As emphasized above, in most developing and tran- of which are key to a successful reform process. sition countries, postal services cannot by themselves sustain existing post office networks. Volumes tend Financial sustainability requires additional changes. to be so low, and demand for postal services so lim- Significant improvements in efficiency often involve ited (in particular among the poor) that the survival a reduction in staff numbers. Labor costs account of the post office network may depend not only on for as much as 80 percent of total post office costs higher quality services and proactive marketing and and yet, in a retail context, staff numbers cannot postal product development, but also on the ability easily be changed to reflect volumes of transactions. to provide other services for which there is a higher In France, 33 percent of post office outlets oper- demand in the communities served. With a net- ated by La Poste have daily activity levels of less work of almost 700,000 postal outlets, post offices than 2.5 hours resulting in a high cost per transac- are indeed well placed to provide a whole variety of tion. La Poste’s solution is to maintain the number services to those communities. Diversification en- of access points through agency agreements with tails significant risks however, which should not be local government offices, and retailers. But the underestimated. Many post offices worldwide al- challenge is even greater for an incumbent opera- ready provide services in multiple markets or seg- tor in a developing country, where mail volumes ments in which competition exists (see Table 1). are significantly lower and the scope of services narrower. Postal Financial Services

In addition, to the extent governments wish to re- Financial services may account for a significant tain universal service obligations in a competitive proportion of postal service revenues, up to 90 market, they will need to be carefully costed and percent in the cases of Algeria and Azerbaijan. rescaled to a financially sustainable level (see chap- Post offices play a significant and, often, unrecog- ters 4 and 5). Some post offices may be closed, nized role in access to basic financial services (pay- deliveries may be cut, and/or customers asked to ments, remittances, savings, giro). Of the 750 mil- collect their mail from post offices, for example. lion accounts in social financial institutions world- The case of Tanzania, where a reformulation of the wide, 56 percent are believed to be postal accounts.4 USO has accompanied broader reform, is further discussed in chapter 6. Institutional frameworks vary from region to re- gion. Postal financial services are usually man-

12 REINVENTING THE POST OFFICE

Table 1. Segmentation of Services Offered by Post Offices

CORECore POSTAL Postal Services SERVICES Service Product Competitors Letters Letters, registered mail, telegrams, Internal/private distribution, fax, newspapers email; often still postal monopoly Parcels Parcels and registered parcels to local couriers and express carriers, 20Kg such as DHL, FedEx, UPS, TNT Express Mail Letters and Parcels - Express same as above OTHEROther SERVICESServices Service Product Competitors Mailroom management managing and sorting mail for large facilities companies; direct mail mailers companies Hybrid mail email delivered by hand telecommunications Electronic Internet, SMS, Postal Telecenters ISPs, cyber cafés Logistics warehousing, picking and packing, transportation companies, freight distribution forwarders Retail phones, phone cards, stationary items Shops, kiosks, news agents etc Rural access access to people (for delivery of schools, community centers, variety of services) religious centers Government licenses, taxation, pensions, benefits, local government, health services, information schools Financial savings, giro, payments, remittances banks, Moneygram, Western Union

aged and operated by the state-owned postal opera- vices. There is also scope to expand postal financial tor, often under a post office savings bank agency services from fragmented mono-products to integrated contract with the ministry of finance (Algeria, Mo- product packages including payment cards, savings, rocco). In some countries, the postal savings are deposits, insurance, and eventually credit. managed by separate (State-owned) banks (as in Indonesia, Kenya, Sri Lanka, and Uganda), through However it is difficult to translate new ideas into a subsidiary or as a separate entity, under the su- practice. In several countries discussions on the pervision of the central bank or banking regulator. repositioning of the postal bank have taken place In many cases, the post office enters into partner- for more than 10 years, without conclusion. In ships agreements with financial services firms to other countries steps have been taken to separate provide their services on an agency basis; typical the postal bank into a company operating indepen- examples include Western Union and Moneygram dently from the post office. However, one of the services for the transfer of money. Third-party issues that may arise following such separation is agreements can also cover real estate services, as is the weak performance of the postal network. The the case in Malawi where the Post Office rents out lack of control over quality, cost and performance space in its main offices to a local bank. may lead the separated postal bank to look for al- ternative networks to conduct its business. This There is a widespread consensus that postal net- illustrates the need for postal operator restructur- works could play a much stronger role in providing ing to establish a strong retail platform from which access to financial services, especially to poor and postal financial services can be securely provided. rural communities with limited access to such ser-

13 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Care should also be given to ensure that postal fi- Diversification may focus on provision of commer- nancial services are well integrated in the country’s cially competitive services or of government ser- overall financial sector and that they do not compete vices. The two approaches are not exclusive, but unfairly with other financing institutions. Establish- they do suggest different priorities in terms of broader ing such a level playing field may require subjecting reform. If the post office is to compete with private the postal financial services to the oversight of the sector providers, such competition should occur on financial sector regulator. a level playing field. Dominant operators (includ- ing the post office) should not be able to provide Postal Telecenters anti-competitive cross-subsidies (hence the impor- tance of open competition and, if necessary, regula- Several post offices have already tried to develop an tion) and should not enjoy customs or tax exemp- Internet access service, with few reports of success. tions, government guarantees, reserved procurement, In many cases, pilots have been discontinued due to or other privileges not enjoyed by private competi- shortage of electricity, lack of proper maintenance, tors. It also requires that post offices are freed from slow access, limited volume of customers, competi- the shackles of bureaucracy, uncompensated univer- tion from cyber cafes, and lack of training of the sal access requirements, and public sector-specific postal staff, among other reasons. Overall, projects legal provisions covering areas such as employment are frequently poorly managed, with no market analy- or procurement. In other words, diversification into sis (demand, state of the competition, tariffs), infra- provision of competitive services requires broader structure constraints (electricity, telephone connec- liberalization of the postal sector (and development tivity), little understanding of the legal and regula- of an effective sector regulator) as a whole to occur tory requirements, lack of a business plan, and not in tandem with corporate reform. On a corporate enough planning for capacity building. level, it requires transparent cost accounting, ad- equate incentive schemes, and capacity building. A recent study of telecenters in Southern Africa found that under a number of assumptions (five comput- If the post office diversifies into government ser- ers, 850 clients per months, VSAT access of vice provision on a noncompetitive basis (provid- 128kbps, 100 percent subsidized training and assis- ing licenses, e-government services, and outreach, tance and VSAT equipment assistance), Internet for example), the urgency for corporate reform is to access in post offices in towns (50,000 to 250,000 ensure that needed services are provided as efficiently inhabitants) might be sustainable. Sustainability in and effectively as possible. This is likely to involve rural areas might also be reached (with, say, three considerable cross-government coordination and citi- computers, 650 customers, 56kbps access) but in zen consultation regarding the services to be pro- remote areas, additional subsidies would be required.5 vided. Government agencies will need to better ar- ticulate how they could use postal networks for bet- Prerequisites for Diversification ter delivery of their services to citizens. Again, this will have to be combined with the implementation Diversification requires substantial capacity build- of corporate restructuring strategies such as those ing, a strategy compatible with the policy, legal and outlined above. regulatory framework, market analysis, tariff set- ting, preparation of business plans, and personnel Whichever diversification option is chosen (commer- training. cial or government services) one should bear in mind

14 REINVENTING THE POST OFFICE

that the track record of diversification by state owned or public service obligations must be clearly deter- enterprises, outside of their core business, has by mined and their net cost calculated and compensated. and large been disappointing in developing and tran- sition countries. Any diversification strategy should Post offices are still contributing to economic growth be based on a solid assessment of the incumbent’s in many countries, but in others, antiquated, under- strengths and weaknesses, as well as the opportuni- funded networks, and lack of competition limit or ties and threats it may face in its core business and reverse that contribution. Governments must reform in the new business being considered. their post offices to ensure they, once again, become an enabler of economic development for the country Conclusion as a whole, potentially through leveraging their ex- tensive retail network. As this increasingly involves Post offices throughout the world were established the provision of services other than traditional postal to facilitate the conveyance of mail. To fulfill the services, governments will need to ensure that this collection and distribution of mail, governments built diversification is carried out in a pro-competitive a network of post offices to provide the entire popu- manner. This means no favored treatment of post lation access to postal services. Many countries re- offices relative to their competitors, but also freeing alized the potential of such post offices in the provi- post offices from the bureaucratic shackles that con- sion of other services, thus, post offices diversified strain them. into providing financial and government services. But the core product still remained mail services. Notes

What exactly is the role of post offices in today’s 1 The term “post office” as used in this paper refers to world? Governments need to define the purpose of the incumbent postal operator, whether it is a public their post office: is it a mail distribution company; administration, public enterprise or private company. is it an access point to government products and ser- vices; is it an access point to financial services; and 2 The Universal Postal Union (UPU) enjoins its mem- is it a commercial self sustaining business? bers to support the concept of universal service, which should provide all citizens “quality basic postal ser- How should it be run? If it is operated on a com- vices at all points in their territory, at affordable mercial basis, nonprofitable outlets will need to be prices”. closed and service levels reduced in areas of low 3 Even this number is inflated as the real number of demand. If this is not acceptable to governments, items passing through each post office will actually they must define adequate schemes to maintain and be lower since business and government mail typi- finance the desired service levels and implement them cally accounts for about 80 percent of mail flows and in a transparent way. For example, the United King- often bypasses retail outlets. dom government pays Royal Mail a subsidy spe- cifically to maintain the rural network of post of- 4 Consultive Group to Assist the Poor. “Occassional fices, which would otherwise be closed. Paper.” July 2004. p.5.

5 See “Postal Telecenters – Rural Development Governments should consider divesting themselves of through Internet access in the Southern Africa De- management control of their post office and put in velopment Community: the Cases of Malawi, Tan- place commercial practices and management. Social zania and Zambia”. World Bank, July 2004.

15 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Charles Kenny

Chapter 3 What Drives Postal Performance? A Cross-Country Analysis

ased on data from the Universal Postal Introduction Union (UPU) and the World Bank, this Bpaper develops indices of postal perfor- In comparative terms, there has been little focus mance and efficiency and analyzes the factors on the relationship between postal performance behind them. It takes a preliminary first cut at and economic development. This is especially examining the statistical relationship between true of econometric work linking the two, where, postal performance (as measured by letters/ compared to a plethora of studies looking at the capita), trust in the postal service, and postal relationship between telecommunications rollout efficiency, and finds a significant link between and economic growth (see Forestier et. al. [2002] the three. The results suggest that reforms that for a nonexhaustive list of 15 such studies), we improve postal efficiency and trust in the postal could find none exploring the statistical relation- network will improve the performance of the ship between postal networks and economic postal network. However, our available mea- growth. sures of reform progress are not strong enough to evaluate the scale of this impact. External Nonetheless, there are a number of potential links factors including urbanization and literacy do between postal networks and development. Like not appear to contribute significantly to perfor- other communications infrastructures postal net- mance. At the same time, it does not appear works allow for the flow of goods, services, and that more heavily subsidized post offices are payments between economic agents. An efficient delivering better services.1 postal network can therefore significantly reduce transaction costs across an economy (particularly for billing and advertising services), forge mar- kets where they did not exist before, and support knowledge transfer between agents that allow

16 WHAT DRIVES POSTAL PERFORMANCE?

innovation and growth. In developing countries haps more importantly the quality of services) in particular, post offices are one of the most far- will increase use of the postal network while, reaching information and communication net- conversely, more use of the system itself will al- works, and provide a widespread base for inter- low greater efficiency. A factor linked to effi- action with the formal financial system. By con- ciency, promoting the number of letters delivered necting people to both markets for goods and ser- at a given income, is trust in the postal network vices and the financial systems that underpin (defined below). The percentage of offices that them, postal networks can be a potentially pow- are run by nonpostal administration staff appears erful tool for poverty reduction. to have a marginal impact on performance. A second measure of liberalization, as well as mea- The theoretical links have been given some em- sures of the use of postal financial services and pirical backing in historical studies such as external factors including urbanization and lit- Ahmed (1981), who suggests that postal network eracy, do not appear to be significantly related to expansion was significantly linked to the growth performance. The Annex discusses a regression of a national economy in India. A number of analysis that confirms these findings. The con- recent studies have added microeconomic and cluding section suggests policy recommendations anecdotal support to the case for a link (Walsh, and avenues for further research. 2001, 2002, and Ranganathan, 1998).

Given that postal networks might well play an Postal Networks in Development important role in the development process, it is important to understand what might help postal There is a close relationship between postal per- operations provide better and more widespread formance and economic development. For tele- services in developing countries. This paper takes communications, the “Jipp curve” linking GDP a preliminary first cut at examining the factors per capita with telephone lines per capita can behind postal performance. Based on data from predict about 80 percent of the variation in tele- the UPU and the World Bank’s World Develop- phone lines per capita across countries at a single ment Indicators, it develops an indicator of postal time (see Forestier et. al., 2002). A “postal Jipp performance measured as letters per capita de- curve” can be constructed linking letters posted livered compared to the number of deliveries ex- per capita with GDP per capita (data from UPU pected given income levels. postal database and World Bank World Devel- opment Indicators).2 The relationship is almost The paper then goes on to discuss possible fac- as strong as the original. About 73 percent of tors behind varying scores on the postal perfor- the variation in the number of letters per capita mance indicator. Examining a correlation ma- can be predicted by GDP per capita (Figure 1). trix of variables, it appears that postal efficiency This suggests that there is a significant relation- (letters delivered per postal employee and postal ship between economic development and expan- expenses per letter) are correlated with improved sion of postal networks. postal performance. Given the scale economies that characterize the sector, it may be that there is a causal relationship flowing both ways. Re- forms that improve postal efficiency (and per-

17 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Figure 1. The Postal Jipp Curve

1000

100

10

1

Letters/Capita/Year 0.1

0.01 100 1000 10000 100000 GDPGDP per Capitacapita (USD)

Developing the Postal Network At this point, as we have chosen to use a dataset that covers as many countries as possible (as we If a strong postal network has a relationship with shall see), data limitations force the use of proxy development, it is important to find evidence on or imperfect indicators. Furthermore, we do not what might drive the development of a strong have cross-country comparable data on price. We postal network (here defined as one which deliv- do have various measures of extent (measures of ers more mail per capita). Supply and demand population covered and post offices per square factors will both play a role in determining the kilometer), efficiency, and quality of services, number of letters sent per capita. however.

On the demand side, income is clearly an impor- Efficiency variables include ratio of revenues to tant factor, as already suggested by the “postal expenditures, postal revenues per staff, and let- Jipp curve.” Perhaps literacy levels might also ters delivered per employee and post office. Look- play a role. On the supply side, one might plau- ing at potential determinants of efficiency, the gen- sibly expect price, extent, efficiency, and quality eral level of development may allow for econo- of service to have an impact—indeed, such rela- mies of scale or more efficient postal institutions. tionships have been found in developed country Private competitive involvement has been found postal services (Nankervis et. al.,1999). It is also to correlate with improved service delivery (in- possible that a post office network offering a range cluding reduced prices) in a number of sectors, of ancillary services and/or services aimed at the and this includes studies of the postal sector in needs of businesses would attract a larger clien- developed markets (Frontier Economics, 2002). tele that might post more letters. Urban postal delivery is more straightforward

18 WHAT DRIVES POSTAL PERFORMANCE?

than rural delivery, as is common with most net- Bank, 1995). Trust, and a broad definition of worked services. All of these factors may im- “quality” might also be related to the extent of pact overall efficiency. service provision.

“Quality” is, at the outset, a comparatively ar- In order to empirically examine our posited rela- bitrary term. In previous postal studies it has tionships, a range of relevant variables were se- been measured using indicators such as number lected from the UPU database as well as infor- of letters delivered on time. It may also encom- mation from Kirkman et. al. (2002), and the pass the linked concept of reliability—are letters World Bank’s World Development Indicators delivered at all? Again, we do not have such data database. These are described in Table 1, with at the cross-country level. Instead, we use a descriptive statistics in Table 2.3 There is con- measure of trust in the postal system (survey siderable variation across countries in most of answers to a question regarding willingness to the indicators—for example, the number of let- send an object worth $100 through the posts) as ters delivered per year per employee varies from a proxy for quality. This trust measure might 196 to 174,930, receipts as a percentage of post plausibly be related to measures of efficiency— office expenditures varies from 11 percent to over bloated public monopolies frequently provide a 400 percent, privately operated post offices as a lower quality of service than efficient ones (World percentage of all offices varies from none to 95

Table 1. Indicators for analysis

Postal index Index of postal success calculated as (log) actual minus (log) predicted letters/capita from regression of log letters/capita against log GDP/capita (PPP). Letters/Capita from UPU, GDP/Capita from WDI. GIT Postal trust Score on GIT index of ‘trust on postal services’ (survey response to question: ‘Do you trust your country’s postal system sufficiently to have a friend mail a small package worth $100 to you (1=not at all 7= yes)’). Source Kirkman et. al. (2002) Illiteracy Illiteracy rate, adult total (percentage of people ages 15 and above). Source: World Bank, 2002. Urban population Urban population (percentage of total). Source: WDI. Savings and giro Number of post office savings and giro accounts per 1,000 people. Source: constructed from data in UPU. Money orders Number of money orders, domestic service per 1000 people. Source: constructed from data in UPU. Letters/staff Letters/staff. Source: constructed from data in UPU. Receipts/Expenditure Postal receipts/Postal operating expenditure. Source: constructed from data in UPU. KM/Office Average area covered by a permanent post office (km2). Source: UPU. % of Offices staffed private Secondary offices staffed by nonadministration as a percentage of total offices. Source: constructed from data in UPU. Expenses/Letter Postal operating expenses/letter (SDRs). Source: constructed from data in UPU. Receipts/Staff Postal receipts/staff (SDRs). Source: constructed from data in UPU. Offices/Population Post offices/population (1,000). Source: constructed from data in UPU. Staff/Office Total postal staff/post offices. Source: constructed from data in UPU. Population unserved Percentage of the population without postal delivery, 2000. Source: UPU. GDP/Capita GDP/Capita, PPP. Source: WDI.

19 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Table 2. Descriptive statistics

Number of Average Standard Minimum Maximum Observations Deviation

Postal index 110 0.00 1.26 -3.39 3.22 GIT Postal trust 51 4.36 1.50 1.80 6.70 Illiteracy 87 20.97 20.93 0.20 84.07 Urban population 110 54.30 22.68 9 100 Savings and giro 41 177 286 0.20 1574 Money orders 88 347 1096 0.02 7322 Letters/Staff 105 31,830 38532 196 174930 Receipts/Expenditure 103 1.07 0.50 0.11 4.73 KM/Office 106 1,491 4358 0.80 29182 % of Offices staffed private 106 29 30 0.00 95 Expenses/Letter 103 2.07 13.96 0.001 142 Receipts/Staff 101 13,288 21900 58.84 132579 Offices/Population 106 0.16 0.18 0.00 1.32 Staff/Office 101 7.73 7.60 0.54 57.44 Population Unserved 94 7.74 18.89 0.00 97.00 GDP/Capita 110 8,389 8720 523 50061

Table 3. Regional statistics of selected variables GDP/capita Expenses (PPP Letters / / Letter Population Served value) ($) capita ($) Trust (%) Asia Pacific 6,106 28.0 0.474 4.38 97 Europe and CIS/ECA 8,030 38.8 0.672 4.70 99.7 LAC 7,017 17.5 0.702 3.03 93 Arab/MNA 4,275 8.3 1.92 4.70 85.7 Sub-Saharan Africa 2,750 9.1 0.5371 3.47 76.8 Industrialized countries 25,191 224.0 0.57 6.02 99.5

percent and the average geographic coverage of based purely on income differences between re- post offices varies from less than one square ki- gions, as we have seen. The remainder of this lometer to nearly 30,000 km2. paper discusses if other factors are also at work.

Table 3 reports regional average statistics, sug- A first stage in the empirical analysis is to look gesting considerable variation even at this aggre- at simple correlations between variables. To do gate level. Letters per capita at this level vary this, we construct a relative measure of postal between nine and 224, expenses per letter from performance based on the “postal Jipp curve.” $0.47 to $1.92, and the trust score from three to This is the (log) actual letters per capita posted six. Much of this variation would be predicted in a country minus the (log) predicted number of

20 WHAT DRIVES POSTAL PERFORMANCE?

letters posted in a country based on what would dicator is perfectly matched with an increase or be expected given the country’s income. Broadly, decrease in the other indicator, the score in the a positive number suggests that the country is matrix would be one. If an increase in one indi- posting more letters than we would expect based cator is perfectly matched by a decrease in the on income, a negative number means people are other (and vice-versa), the score in the matrix using the (official) postal system less than ex- would be –1. Strong positive or negative corre- pected (for example, the 2000 score for Algeria lation scores (greater than 0.5 or less than –0.5) is 0.99, Morocco 0.87, Trinidad.24, Tanzania are highlighted. The next 10 paragraphs discuss 1.82 and for Senegal –0.11).4 the results presented in Table 4.

We can now study a correlation matrix based on We can use the postal index score (letters per this data. The numbers in the matrix (Table 4) capita performance allowing for income) for 2000 suggest the degree to which one indicator varies to see what correlates with “better than expected” in step with another. If there is no relationship postal performance. Looking across the first row between changes in one indicator and the other, of the correlation matrix, it is possible to see how the score in the matrix would be zero. If an in- closely our index of postal performance is re- crease or decrease across observations in one in- lated to the other indicators in our database. In

Table 4. Correlation matrix

% Offices Staffed Private Receipts/Expenditure Population Unserved Offices/Population Urban Population Savings and Giro GIT Postal Trust Expenses/Letter Receipts/Staff Money orders GDP/Capita Letters/staff Staff/Office KM/Office Illiteracy

Postal index 0.55 0.13 -0.19 0.00 0.17 0.35 -0.01 -0.10 0.18 -0.30 -0.10 0.10 0.13 0.07 0.08 GIT Postal trust -0.22 0.36 0.51 0.32 0.72 0.34 -0.33 -0.01 -0.24 0.65 0.48 0.46 -0.43 0.81 Illiteracy -0.60 -0.39 -0.21 -0.28 0.06 0.42 0.02 0.15 -0.33 -0.43 -0.12 0.43 -0.56 Urban population 0.36 0.14 0.43 -0.07 -0.26 0.02 -0.09 0.40 0.21 0.37 -0.41 0.62 Savings and giro 0.10 0.50 0.05 -0.16 -0.22 -0.03 0.83 0.29 0.19 -0.22 0.53 Money orders 0.09 0.05 -0.10 -0.16 -0.04 0.04 0.17 0.20 -0.11 0.24 Letters/Staff -0.02 -0.12 0.15 -0.10 0.56 0.03 0.46 -0.15 0.66 Receipts/Expenditure -0.02 -0.01 0.05 0.04 0.11 -0.03 -0.04 -0.02 KM/Office -0.16 0.60 0.13 -0.25 0.09 0.08 -0.22 % of Offices staffed private -0.07 -0.01 0.21 -0.31 0.04 -0.02 Expenses/Letter 0.50 -0.10 0.14 -0.02 -0.08 Receipts/Staff 0.03 0.39 -0.19 0.60 Offices/Population -0.11 -0.27 0.37 Staff/Office -0.12 0.50 Population unserved -0.30

21 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

short, the postal index appears to be strongly and extending access, countries where revenues were positively correlated with our measure of trust in considerably smaller than expenditure (and so the postal system and the number of letters per countries where subsidies were large) would see employee, and strongly negatively correlated with a larger number of letters per capita, a lower ra- total postal expenditure divided by the number tio of square kilometers to offices, a higher num- of letters delivered.5 This suggests that trust in ber of offices per capita, or a lower unserved services and efficiency in their delivery are both population. None of these results hold.7 Subsi- important to increased postal volumes. dies are apparently not extending access to or use of the postal network (this could also suggest What do these simple correlations suggest about that demand for letters sent in developing coun- possible explanatory factors driving postal per- tries is fairly independent of price, perhaps fur- formance? First, it suggests that demand does ther emphasizing the importance of efficiency and not appear to be simply correlated with literacy reliability in increasing volumes). rates. Countries with literacy rates below 80 percent have an average postal performance of There does not appear to be a particularly strong 0.24 –higher than those countries with a literacy link between the level of postal financial services rate of above 80 percent—at -0.20. Income ap- used by the population and basic postal perfor- pears a better determinant of postal demand than mance. Given that the postal financial network literacy rates, then—perhaps in part because in might be considered a good in its own right, this many developing countries many literates do not suggests that a separate analysis of what leads to use postal services, suggested by letters per capita a strong network may be worth undertaking. volumes of under one piece per capita per year. Some suggestive correlations do appear, however. Savings and giro accounts per capita is strongly On the supply side, and related to the above, it correlated with receipts per employee (unlike the does not appear that the extent of the network (as postal index itself), suggesting that the postal fi- measured by the percentage of the population nancial network may play an important role in covered or post offices per square kilometer), the creating income for the postal network and re- level of urbanization or the presence of ancillary flecting, perhaps, the greater importance to many services is correlated with increased letter vol- post office customers of financial services pro- ume per capita at a given level of income. These vided through the postal network than letter ser- results may suggest limited demand for a univer- vices. sal letter service in developing countries, given that countries where more people can (theoreti- At the same time, the results strongly suggest that cally) post and receive letters do not see larger efficiency improvements may be an important letter volumes as a result. This is an idea ex- element of the story. Both postal expenses per plored further in Kenny (2004).6 letter and letters delivered per postal staff mem- ber are strongly correlated with postal perfor- The lack of a relationship between postal receipts mance—lower costs and fewer staff per letter are divided by postal expenditure and performance correlated with more letters sent at a given in- may further suggest that government subsidies come (see Figure 2). As noted earlier, it is prob- justified on the grounds of extending use of the able that causation runs in both directions. High postal network are not working. If subsidies were fixed-costs mean that factors that increase vol-

22 WHAT DRIVES POSTAL PERFORMANCE?

Figure 2. Postal performance by expenses per letter

4 3 2 y = -1.2492x + 0.8064 1 R2 = 0.4544 0 -1 -2 Postal Performance -3 -4 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 Expenses/Letter (two outliers removed)

umes will improve efficiency, while improved This suggests the unsurprising result that effi- efficiency and quality will also increase the de- ciency is related in part to GDP per capita, but mand for mail services. Trust in the postal net- also suggests other factors are at work—sub- work is also a significant correlate with postal Saharan Africa does better on this index than performance—countries with low trust in the would be expected given its income, Eastern Eu- postal system (a score of below 4 out of 7) aver- rope and Central Asia, as well as the Middle East age postal performance of -0.59, compared to and North Africa do worse than would be ex- countries with high trust (above 4) that average pected. 0.51. Like efficiency, postal trust is correlated with Efficiency related indicators include letters de- income, suggesting that it may be difficult for livered per staff, ratio of revenues to expendi- developing countries to greatly increase trust in tures and postal revenues per staff. Since these the postal network, perhaps through institutional indicators are correlated with each other, we can reform. For those countries that do manage to construct an index for efficiency as the principal improve trust, however, the payoff may be high. component of these four indicators. The regional One possible avenue suggested by the strong posi- averages of the index are illustrated in Figure 3. tive correlation between letters/staff and trust, is Industrialized countries lead at an index of 2.0. to reduce over-staffing in the postal network. It Asia Pacific region’s index of 0.448 is a step ahead is worth noting that it appears efficiency and high other developing countries. East European and quality of service are positively related. Coun- Central Asia scores the last among all regions.9 tries with low postal efficiency in the postal sys-

23 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Figure 3. Postal efficiency index by region

Industrialized countries

Sub-Saharan Africa

Arab/MNA

Latin America and Caribbean

Europe and CIS/ECA

Asia Pacific

-1 -0.5 0 0.5 1 1.5 2 2.5 Postal Efficiency Index

tem (an index of below 0) average a trust score post office is staffed by people outside the postal of 3.62, compared to countries with high effi- administration score an average of -0.43 on ciency index (above 0) which average 4.97. In the performance index, while those with at least other words, at least at first examination, there one such office score an average of 0.17. Hav- does not appear to be a necessary efficiency-qual- ing said that, the link appears statistically weak. ity trade-off—instead, it is possible that greater efficiency can drive improvements in both vari- There are at least two possible reasons for these ables.10 results:

Turning to factors that might lie behind the effi- n There are significant data weaknesses. The ciency result, expenses per letter seem to be measure of “percentage of offices that are uncorrelated with income per capita, despite the privately staffed” is also only a crude and theoretical argument that would suggest a strong partial indicator of sector reform. Further- relationship based on scale economies in deliv- more, countries that have a liberalized mar- ery (driven by factors such as the fixed costs of ket are likely to be the ones where statistics delivery). The lack of such a relationship may on mail volumes provided to the UPU are reflect the fact that developing country post of- weakest, with a likely bias towards under- fices provide fewer ancillary services, while hav- reporting.11 ing lower labor costs and a far lower level of quality of service in developing countries. None- n It may be that the indicator does not cap- theless, it also reflects the possibility of increas- ture what is important as part of a success- ing efficiency in poor countries. ful reform agenda (“Postal Policy and Regulatory Reform in Developing Coun- Regarding the impact of reform on efficiency and tries”). The case studies in Walsh (2001) letters per capita, countries where no secondary covering Argentina, Tanzania, and Trinidad

24 WHAT DRIVES POSTAL PERFORMANCE?

and Tobago suggest that privatization with- date) cannot move far beyond the level that it out successful regulation (Argentina) can may not be as simple as franchising offices. produce worse results than corporatization and various types of management contract However, we know that successful reform pro- (Tanzania and Trinidad and Tobago). An grams can improve the indicators that make up important factor behind increasing the let- our efficiency index. Both Trinidad and Tobago ter flow of the incumbent captured in UPU and Tanzania’s reform programs saw letters de- statistics may be better management at the livered per postal employee approximately double top of the incumbent itself—ill captured by (estimated from Walsh, 2001). Careful case study our measure of reform. analysis of reform, of the type summarized in Walsh (2001) should drive policy recommenda- The Annex contains results of a series of regres- tions in this area. sion analyses that confirm the above results— efficiency and quality appear to be important de- Given the preliminary nature of the results pre- terminants of performance, but the link between sented here, there is clearly scope for consider- franchised offices and efficiency appears weak. ably more research in this area. A first step for such research would involve the collection of more data (where the UPU and its members should play Conclusion a lead role). In particular, it would be useful to have data covering mail volumes in the whole The results in this paper, it should be repeated, sector (not just volumes delivered by the incum- are very preliminary. They measure postal per- bent), prices for mail delivery services, and de- formance in a narrow way, excluding, for ex- tails on the status of sector reform in a wide cross- ample, the important role that post offices play section of countries. A second step would be a in the delivery of government and financial ser- more advanced analysis of the data based on re- vices. Further, they relate to single-period corre- gression analysis of models of postal demand. lations, and such correlations can say nothing Better data and more advanced analysis might about causation. The most the results can sug- allow for the evaluation of the impact of various gest is that the data does not disprove a given reform models on volumes, quality of service and theory. Nonetheless, they are suggestive. It ap- price. pears that it is possible for developing countries to improve the performance of their postal sec- tors through efficiency reforms, especially those Annex: Regression Analysis of that increase trust that letters will be delivered Efficiency, Trust, and Improving intact and on time. Such reforms may be able to Performance stem postal sector losses while at the same time delivering positive improvements in the quality In order to test the determinants of the postal ef- of service. The cross-country data on reform is ficiency and its impact on the reliability and per- not fine-grained enough, to allow for a serious formance of postal services, we estimate a simple statistical analysis of what reforms work and how linear regression model on the efficiency index to improve efficiency. The tentative conclusions and a two-stage least square model for the latter, that can be drawn from the evidence we have (to as summarized in the following equations:

25 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Regressions with Efficiency as Dependent Variable Variable Coefficient Student’s T Log GDP/capita 0.851 3.79 Urban population (%) 0.003 0.35 Private offices -0.003 -0.66 Literacy 0.016 1.84 Constant -7.575 -4.43

Regression with Trust as the Dependent Variable Variable Coefficient Student’s T Efficiency Index 0.485 5.11 Percent of population served 0.045 2.46 Constant -0.042 -0.02

Regression with Log Letters/Capita as the Dependent Variable Variable Coefficient Student’s T Log GDP/Capita 1.956 6.62 Efficiency Index 0.340 1.90 Predicted trust 0.911 0.48 Literacy -0.001 -0.09 Urban population (% of total) -0.027 -2.64 Constant -13.418 -5.51

As for factors that might lie behind the efficiency The analysis of the correlates with letters per index, regression analysis of Equation (1) sug- capita as the dependent variable in Equation (6) gests that income levels play a dominant role. suggests that efficiency is strongly related to this Literacy (perhaps because of its link to the po- measure of postal performance. The results again tential postal market and the capacity of the postal suggest that there is insignificant correlation be- staff), also has a statistically significant impact tween possible environmental determinants of although the magnitude is rather small. Echoing performance (urbanization and literacy) and the the correlation results above, however, the results postal performance measure. Performance on the suggest no link between policy reform as mea- postal index does not appear to be determined by sured by the percentage of offices that are pri- these factors that are difficult for developing vately staffed12 and postal efficiency. countries to change over the short-term, then. This suggests the potential for reform efforts to As would be expected, the results from Equation have an impact on performance. (2) suggest that trust in the postal network is strongly correlated with postal efficiency. A 10 percent efficiency improvement is associated with an eight percent increase in the trust index.

26 WHAT DRIVES POSTAL PERFORMANCE?

Box 1. Formulas

(1) EFFINDEX i = a1 +a 2 (GDPi ) +a 3 (URBPOPi ) +a 4 (PRIVATi ) +a 4 (LITERACYi ) (1) (2) TRUSTi = b1 + b 2 (EFFINDEX i ) + b 3 (POPSERVE i ) (2)

(3) LETCAP = g + g (GDP ) + g (EFFINDEX ) + g (TRUST ) i 1 2 i 3 4 predicted

+ g (LITERACY ) + g (URBANPOP) 5 i 6 (3) (4) TRUST = bˆ + bˆ (EFFINDEX ) + bˆ (POPSERVE ) predicted 1 2 i 3 i (4)

Notes countries with weak operators, much mail is deliv- ered by unofficial operators—which is not captured 1 Senior Economist, the World Bank. Particular in the statistics. The trust index could reflect trust thanks go to Christine Qiang for both comments and in express or highly guaranteed mail services rather for providing the regression analysis presented in than the country’s core mail service. the annex. 4 As a first, very preliminary, step in overcoming the 2 Letters/capita is clearly not a directly equivalent lack of evidence regarding postal performance and measure of telephones per capita—it is more of a economic growth, using 1980 data to construct the measure of use (equivalent, perhaps, to minutes of index, and data on economic growth rates over the call time/capita) than of infrastructure rollout. An- 1980-2000 period, we can see if countries that have other measure might be post offices/capita. However, a positive score on the postal index see faster subse- as post offices are public, whereas the great majority quent growth. Looking at the results suggests that of telephones are private, this is not a good com- there might be such a relationship. Overall, 72 per- parator, either. For example, Hong Kong could prob- cent of the 79 countries suggest the correct relation- ably get away with very few really large post offices ship (positive to positive or negative to negative) to serve the entire city, obviously it couldn’t do the between the postal index score and growth outcome. same with telephones. The most direct equivalent Clearly, it is likely that a positive score on the postal may be home letterboxes per capita, but that does index correlates with a number of other factors (per- not appear to be available in the UPU database. haps general institutional quality, for example) which 3 It should be pointed out that much of the data is are also factors behind growth. However, the re- subject to significant error. For example, the UPU sults are suggestive of the role that the postal system collects its data from the incumbent postal operator may have to play in the economy and development. and it has limited capacity to check the reliability of 5 It is important to remember that this is a measure this information. Further, while such operators usu- of postal performance given income—if the measure ally have an official monopoly over at least parts of used was letter per capita, it would be strongly cor- the postal delivery system, especially in developing

27 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

related with any indicator that was also related to slightly above average performance on the perfor- income per capita (including, for example, urban- mance index. However, the result is not statistically ization). It should also be noted that letter/capita significant and is based on only eight countries that and expenditures/letter are all arithmetically linked fit the criteria (Gabon, Guatemala, Guinea Bissau, by the inclusion of letter volume. Morocco, Tanzania, Togo, and Trinidad and Tobago).

6 It is worth noting that countries with urbanization 12 The World Bank liberalization index was not used rates below 50 percent have an average postal per- in regression analysis because it was created based formance of 0.29—higher than those countries with on a small and unrepresentative sample. an urbanization rate of above 50 percent—at -0.20. This may be an artifact of a nonlinear relationship between income and letters per capita. Alternatively, it may reflect a problem with the data, related to the comparative ease of competitive service delivery in urban settings. Developing countries with large ur- ban populations are seeing a greater level of legal or illegal competition to the incumbent, and this com- petition is delivering letters that are not reported in the UPU statistics.

7 The weak correlation between urbanization and receipts/expenditure suggests that it is not the case that subsidies are going to deliver the same level of service in countries where delivery is more complex.

8 This is probably because Hong Kong is grouped in EAP, not in the industrialized countries.

9 This efficiency index has a sample mean normal- ized to 0, sample standard deviation of 1.429. It ranges from a minimum of –1.031 (Tajikistan) to a maximum of 8.029 (Hong Kong, China).

10 Alex Dieke (in correspondence with the author) notes a similar phenomenon occurred in Europe in the 1990s, where TPG and Deutsche Post both saw improved routing times and reduced costs and em- ployment.

11 Interestingly, it is positively correlated with the number of staff per office. Use of another measure of “reform”—countries with a World Bank project listed in the Bank’s postal projects database which began before 2000, that had a policy/regulatory re- form component—suggests that project countries see

28 QUESTIONING THE MONOPOLY-SUPPORTED POSTAL USO IN DEVELOPING COUNTRIES

Charles Kenny

Chapter 4 Questioning the Monopoly-Supported Postal USO in Developing Countries

he monopoly-supported universal service “Member States shall ensure.. the perma- obligation (USO) is usually defended on nent provision of a postal service of a speci- Tthe grounds that the monopoly allows for fied quality at all points in their territory at cross-subsidy in letter services that in turn al- affordable prices for all users… the univer- lows universal access to a service of great im- sal service provider(s) guarantee(s) every portance to all. This paper argues that letter de- working day… one delivery to the home or livery (as opposed to other services that may be premises of every legal or natural provided by post offices) is not in universal de- person…[for] postal items up to two kilo- mand in poor countries, that the size of the mar- grams [and] postal packages up to 10 kilo- ket in developing countries is such that USOs grams…” could not be met under the monopoly model, and that the monopoly carries heavy costs for sector Traditionally this USO has been linked with mo- development and consumer welfare. It proposes nopoly provision of services. The theory of the in the place of the postal USO a competitive ap- monopoly-provided USO can be summed up as proach involving universal access to a range of follows. Mail delivery to the home is an impor- services that poor people have a need to access. tant public service to which all should have ac- cess. For many low-volume or difficult to ser- vice users, however, the market price of mail ser- The Theory of the Monopoly- vices would be prohibitively high. In order to supported USO serve those customers while allowing for a fi- nancially sustainable postal network, a monopoly The European Union (EU) defines universal ser- operator charges a single stamp rate for nation- vice to post in the following terms: wide delivery, with “profits” made from the de- livery of mail to high-volume areas and users

29 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

(where the price of the stamp is higher than the reached. More narrowly, similar language of cost of delivery) used to support “loss-making” universality is used in other infrastructure sec- delivery operations for low-volume areas and tors including electricity. There (too) the lan- users. guage conflicts with the reality—in part because of inefficiencies and inequities of provision, but Many developing countries have adopted the also because there are only so many resources, monopoly USO model for their own postal sys- and a great many needs for those resources to tems. They do not tend to have USOs as strin- meet. gent as the EU’s, while in many cases, the obli- gation is rather imprecise or undefined, it rarely Is there evidence that everyone in developing involves home delivery, for example.1 Nonethe- countries needs (or would use) letter delivery to less the general model holds that a provider will a nearby post office every business day or every ensure one-price letter delivery across its national week? To begin to answer that question it is worth territory, funding loss-making routes with the looking at demand for letter services in poor coun- revenues that it is guaranteed from a monopoly, tries. Overall demand for postal services is very over delivery on profitable routes. closely correlated with the size of an economy. Smaller (poorer) economies see lower mail vol- The model has proven itself practicable (if not umes (letters per capita). Countries with a GDP necessarily efficient) in many wealthy countries. per capita (PPP) of below $1,000 see mail vol- However, its application in developing countries umes of below 1 per person per year—compared is likely to be inefficient, impractical, and ineq- with closer to 100 per person in countries with a uitable. This paper argues that a narrow, mail- GDP per capita of above $5,000 (Table 1). based USO should be abandoned and the postal sector opened to competition. In place of a mail- Constraints on demand due to inadequate or ab- only USO, governments in developing countries sent service delivery will be one factor behind might decide to extend access to a bundled range low levels of use, but by far the dominant cause of services widely in demand by urban, rural, is demand related to income—as suggested by poor, and rich alike. These services might be the results of both postal reform and extending delivered through post office franchises. access. Under reform, service quality improves, and this tends to increase use of the postal sector. But the usage increase, while impressive, is in Do We Want a USO for Letter the region of perhaps 100 percent, rather than Delivery in Developing the 10,000 percent differences between low in- Countries? come and high income country usage rates. For example, successful postal reform in Tanzania Does everyone in the developing world need let- saw mail volumes increase from 0.87 to 1.26 let- ter delivery in the same way as one might argue ters per capita per year during 1994-98. This the need for primary education or health care? It post-reform figure remains only approximately is perhaps worth asking this question in the con- 0.17 percent of US per capita mail volumes. text of severe resource constraints that mean the There are considerable limits on the demand for goals of universal primary education or univer- mail services in poor countries even where the sal access to basic health care are far from being mail service provided is of a reasonable quality.

30 QUESTIONING THE MONOPOLY-SUPPORTED POSTAL USO IN DEVELOPING COUNTRIES

Table 1. Postal structure and development Indicator Average for GDP Per Capita (PPP) Band <$1,000 $1,000-$5,000 >$5,000 Letters/Capita 0.9 4.6 98.4 Total letter volume 10m 634m 2,468m KM2 per post office 4,702 1,738 458 Source: Calculated from UPU and World Bank data, 2001

Regarding extended access, there does not seem to be a financially viable option. If universality to be a relationship between the percentage of was achieved using some sort of subsidy mecha- the population covered by postal service and let- nism, given the direction of most mail, this would ter volumes per capita in developing countries— constitute a regressive intervention. Given that extending network access, like improving network the beneficiaries would be primarily large busi- quality, does not apparently uncover significant nesses and wealthier individuals, general govern- unmet demand for postal services (Kenny and ment revenues would be used to support these Qiang, 2004). wealthy few with little benefit to the poor and illiterate. The average consumer in poorer countries sends perhaps one letter per year—and we know that On the other hand, post offices can deliver far the great majority will neither send nor receive a more than mail. In many developing countries, single letter.2 In particular, there is little demand postal payments represent over 50 percent of to- from businesses (which account for as much as tal postal revenues, and post offices remain the 80 percent of letters sent [Lee, 2004]) to deliver principal point of access to financial services for mail to the poorest in developing countries. This the majority of the working population (Walsh, is because most do not have services that re- 2001). Many post offices also act as the inter- quire billing (telephony or electricity, as it might face for government-to-citizen interaction such be), and they are hardly an attractive target for as license payments. Adding together this bundle companies in terms of marketing purposes. of services that post offices frequently deliver, governments may well decide that it is vital for If the majority of the population never receives a the great majority or all of citizens to be able to letter in the poorest countries, and might not even reach the service delivery point. after significant postal reform, the concept of universal service is somewhat nonsensical.3 And It should be noted that we are some way from the for the great majority of the over one billion goal of universal (or even widespread) use of a people worldwide who live on less than a dollar post office. First, many people in poor countries a day, it is not clear how they would write a letter do not even live within usable distance of a post or what they would do with one even if they got office, as is suggested by the fact that, for coun- it—they are illiterate (Kenny, 2002). tries with a GDP per capita of under $1,000, there is only one post office for each 4,700 square ki- Overall, there does not appear to be significant lometers of territory as compared to one office demand for universal letter service even if it were per 458 square kilometers for countries with a

31 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

GDP per capita of above $5,000. Second, it ap- In order for the USO to be sustainable through pears that only a very small percentage of that cross-subsidy from profitable routes to unprofit- population already in walking distance of a post able ones, there have to be enough profitable office currently use it even in reformed develop- routes (and few enough unprofitable ones) to al- ing country markets. In Tanzania, for example, low for universal service at a reasonable price. an average of about 0.4 percent of the popula- The evidence suggests, however, that average per tion within the catchment area of a post office piece costs in developing countries are very high, visit that office each week (PWC, 2004).4 both due to scale effects but also a large propor- tion of expensive-to-service rural customers. This Regardless, if the goal is universal access to a suggests that there is not the amount of profit- whole range of services out of which delivery of able service at an acceptable price to support the letter mail is an unimportant component for most letter USO. citizens, again, a strictly postal USO makes little sense. And if we are to look at the USO as a By and large (and with obvious exceptions such broad commitment to support a whole range of as China and India), absolute mail volumes in government-to-citizen interactions, perhaps along poorer countries are very small. Total mail vol- with financial and other services, the traditional umes in countries under $1,000 GDP per capita industrialized country model of financing the average 10 million pieces, compared to 2.5 bil- USO seems inappropriate even if it were work- lion pieces in countries with a GDP per capita of able in developing countries. Can we justify a over $5,000 (Table 1). funding mechanism that forces the urban letter- stamp purchaser to subsidize the transactions This is a problem because it is clear that there costs of a rural applicant for a car license as part are fixed-costs associated with mail systems that of a system that frequently provides substandard make low-volume environments high-cost ones letter delivery? as well. Scale economies, due to factors such as automated processing and (more significantly) scale effects in delivery, will be one factor be- Could a Letter USO be Supported hind a relationship between total mail volumes in Developing Countries under and letters delivered per employee. Countries that the Monopoly Model? see delivery of fewer than one million letters a year deliver on average below 4,000 letters per Even if developing countries desire a monopoly- employee per year (such countries include Cape supported USO model, it appears unlikely to be Verde, with just over 939,000 letters delivered sustainable in many countries. This section ar- by a staff of 3,947). This compares to over gues that developing countries, with small postal 60,000 per employee in countries where over 100 markets, cannot benefit from significant scale million letters are delivered a year (South Africa economies (which in turn drives up the per-unit delivers nearly 2 billion letters using a staff of cost of letter delivery) and face far more compli- 74,000, for example). This is a 15-fold produc- cated environments in which to deliver mail. tivity difference (Table 2). These factors combined mean that even a limited USO model supported by monopoly rights would We can see the impact of scale economies by look- be unsustainable in many low-income countries. ing at estimates based on the United States Postal

32 QUESTIONING THE MONOPOLY-SUPPORTED POSTAL USO IN DEVELOPING COUNTRIES

Table 1. Cross-country evidence of scale economies in posts

Average for Total Letters Delivered Band <1,000,000 1,000,000 – >100,000,000 100,000,000 Letters/Employee 3,587 20,693 59,739 Source: Calculated from UPU and World Bank data, 2001

Service (USPS) on the costs of a US-style ser- vice in lower volume environments with lower Figure 1. Estimated relationship input costs. The USPS will differ dramatically between costs per letter and volumes in terms of automation, route topography, mix of 3 mail, efficiency, and the nature of its customer 2.5 base—and so the model is only an approxima- 2 tion (made less accurate by a weak proxy for 1.5 input costs—that of GDP per capita). While

cost per piece 1 Cohen et. al. show that it functions reasonably 0.5 well in estimating features of rich country postal 0 operations, it is very likely that the adjusted model 0 50 100 150 200 250 300 350 400 450 500 will become increasingly inaccurate as a guide pieces per capita when looking at low-income postal markets (Cohen et. al. 2003a). drop below 100 per year, costs rise dramatically 5 It is also worth noting that UPU data suggests a above 50 cents per piece. This may help to ex- fairly weak relationship between GDP per capita plain why the United States only mandated uni- and total costs per letter (Kenny and Qiang, versal home delivery in 1958, when letter vol- 2003). This is somewhat surprising given evi- umes were above 300 per person per year dence that poor countries in general see low vol- (Campbell, 2004). umes and so will benefit less from economies of scale. The result will be due at least in part to Table 3 suggests the breakdown of costs of US- the facts that labor costs are lower in developing quality delivery per piece of mail in a system of countries and that most developing countries of- universal service in an economy where postal fer a lower quality, extent, and scope of services volumes per capita were low, based on data from (not delivery to the door, not six days a week, not the Cohen et. al. study and the World Bank. As fast and reliable, and absent ancillary services seen, delivery would be expensive—over $0.76 such as pension payments). per letter in a country with mail volumes of 10 per capita. Even without delivery to the door, 6 With those caveats, Figure 1 shows what the the costs are high—over $0.60 per letter. Again, Cohen study and World Bank data suggests the this data only suggests orders of magnitude, as it cost of delivering a letter under United States’ is based on United States’ postal data adjusting USO standards would be in countries with lower for input costs—and the USPS is an operation in mail volumes. As the number of pieces per capita a very different (broadly more positive) environ-

33 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

than others, and deliver more mail at the same Table 3. Estimated cost level of GDP than others. It seems clear that breakdown of USO services postal performance (in terms of letters per capita) in low-volume environments is correlated with greater operational efficiency Cost of Mail/Piece ($) (measured by letters per staff, for example) and Pieces/Capita trust in the postal network (itself reflecting qual- 10 5 1 ity of service) (Kenny and Qiang, 2003). At the Mail processing 0.06 0.07 0.16 Transportation 0.02 0.03 0.07 same time, some developing countries have very Window service 0.08 0.13 0.34 large, very dense postal markets where delivery Delivery 0.76 1.19 3.06 is far more straightforward. Nonetheless, the Other 0.44 0.69 1.77 Total 1.36 2.11 5.40 point remains that, in most cases, even less strin- gent USOs would be more expensive per letter than similar obligations in the developed world. ment from most developing countries. Nonethe- less, the point is clear that letter delivery becomes At the same time, the profitable market that considerably more expensive in low-volume en- might provide cross-subsidy is far smaller, be- vironments, not merely because of rising costs of cause of the lower level of urban development home delivery, but also because the other fixed and large corporate customers. Even in some costs of the network are divided up amongst far of the richer, most population-dense, urbanized fewer stamp purchases. developing countries about 90 percent of routes are loss-making.7 This situation would be worse The reality for a great majority of poor countries in countries where only 31 percent of the popu- is that total mail volumes will be small enough to lation were urban (the case in low income coun- suggest severe scale diseconomies—mail deliv- tries). The cost and complexity of service de- ery will be comparatively very expensive to pro- livery, especially in small markets, will help vide to all, let alone the difficult-to-serve. account for the fact that post offices frequently make significant losses in the developing world. Making this problem more acute is the fact that Forty-five percent of countries with GDP per a far greater percentage of people in developing capita under $5,000 see revenues below operat- countries are difficult-to-serve rural customers— ing expenses (let alone total costs).8 69 percent in low income countries (World Bank, 2002). Income density—an important measure Putting revenues and indicators of costs together of “demand for postal services per square kilo- suggests the scale of the problem. Low income meter”—is far lower in developing countries than countries will average total postal volumes lower rich ones—$39,000 per square kilometer in sub- than 10 million pieces a year. Imagine a national Saharan Africa as compared to $658,000 in high stamp price of $0.12.9 National stamp revenues income countries, for example (Kenny, 2002). will bring in perhaps $1 million per year. This to Both of these factors suggest that even less strin- support delivery to a population that is 69 per- gent USO may cost more to meet in poor coun- cent rural and on average receives less than one tries than they would in rich ones. piece of mail per year. There is significant variation in all of these num- bers—some postal operations are more efficient

34 QUESTIONING THE MONOPOLY-SUPPORTED POSTAL USO IN DEVELOPING COUNTRIES

The price of delivery and the related costs of Against the Legal Monopoly USOs can be significantly reduced from the hy- pothetical levels of Table 3, if the USO is real- The two arguments for monopoly provision in istically defined. In the United States, mail that the postal sector are first, that the sector is a natu- is nondelivered (i.e., is picked up at post offices) ral monopoly and second, that the monopoly al- accounts for 21 percent of volume and 67 per- lows for cross-subsidy of services and so meet- cent of profits. In Italy, similar numbers are 14 ing USO targets. and 42 percent. In other words, avoiding home- delivery dramatically reduces costs even in high- The first argument is not a good argument, even density environments such as in the United States in theory, for enforcing a de jure monopoly. There (Cohen et. al. 2003a). Abandoning home deliv- are some reasons to believe that mail delivery ery for a post office box system (the de jure services may be “natural monopolies”. Mail de- case in many developing countries, the de facto livery involves a network, and network externali- case in the majority) will greatly reduce costs. ties suggest that one big network serving a given This has been done in Senegal, for example, area will, other things being equal, be more effi- where home delivery carries an extra charge. cient than many overlapping networks providing the same service. In other words, if you leave a Asymmetric charging can also help raise rev- competitive postal market alone, it is likely that enues for rural access. Historically, differen- one competitor will eventually win out to control tial charges applied in nondeveloped markets— all, or nearly all, of the market.11 But this is no with the postal service in 17th century England justification for legally enforcing that market from charging four times as much to deliver a letter the start. Quite the opposite. It is a reason to from London to Scotland than within London regulate the market so that a monopolist cannot (Ogilvie, 1893).10 Furthermore, “universal ser- take advantage of its position to squash competi- vice” does not have to mean uniform service. tion and over-charge consumers for services. In Tanzania, the quality of service is lower in rural areas, with service only provided to post Furthermore, the “natural monopoly” character- offices, and at D+4 rather than D+1. Again, in istic of posts, especially in developing countries, Costa Rica, the target is D+2 for urban and D+4 may be oversold. We don’t need to go too far for rural. from basic posts to see that competition can work even in “networked postal” industries in devel- Nonetheless, even differential service targets— oping countries—DHL, FedEx, and UPS dem- as part of the USO—are unlikely to reduce costs onstrate that competition can flourish where ob- to allow for a sustainable universal service, to be ligations are few and prices can reflect costs. And provided at a reasonable stamp price, on the back in a developing country environment where total of the few profitable urban routes in low income postal volumes are frequently too small to gar- countries. And so monopoly provision, even if ner significant scale economies, the disadvantages efficiently run, would not garner the profits large of market fragmentation are reduced. Some evi- enough to come close to true universal service dence for this is that in many developing coun- provision. tries, a number of large postal users legally or illegally bypass postal incumbents to provide their own services (in Jordan, legal competitive op-

35 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

erators provide services to deliver bills despite In these cases, not only is an enforced monopoly serious handicapping, for example).12 failing to deliver on the promises of the USO, but by stifling competition, it is forcing people The widespread bypassing of incumbent postal who use the post to use an inefficient and unre- providers in developing countries suggests that, liable service provider. For little or no benefit whatever theoretical advantages to scale, the in- to the rural poor, the monopoly penalizes the efficiency of monopoly government provision fre- corporate and urban user. quently outweighs them. Monopolies are likely to be less efficient and less innovative than com- The practical example of the benefits of com- petitive environments because the usual incen- petition over monopoly in a poor developing tive to innovation and efficiency (the fear of los- country is Tanzania, where during a process of ing customers to the competition) is not there. liberalization, total mail volume increased from When the monopoly in question is operated by 0.87 letters/capita/year to 1.26 between 1994 the government, the “theoretical” problem be- and 1998 as we have seen, while the postal com- comes even more acute. There is not even the pany moved from loss to profit, and the number incentive to maximize the quality and efficiency of post offices increased (UPU and WB 2001). of services at a given cost in order to maximize Prices did rise closer to costs, but consumers (revenues and) profits. In an environment where were clearly willing to pay higher prices for a the government monopoly service provider pro- higher quality of services. vides an inefficient, poor quality service, any “natural monopoly” advantages it should theo- The second argument for monopoly is that if it retically enjoy are frequently outweighed by the were removed in a system of one-price national fact that post offices have not been run on sound mail delivery, competitors unburdened by a USO business practices. would serve those routes that cost less to ser- vice than the price of a stamp. Once competi- Not only are staffing levels frequently very high, tors had “skimmed the cream” from these routes, but pricing structures suggest that the post office the USO provider would be left serving only (or may even be losing money delivering to what mainly) routes that were unprofitable at the cur- should be their more profitable urban and corpo- rent stamp price, leading to significant losses. rate customers. A monopoly will only produce revenues to fund the obligation if prices, some- The cross-subsidy under monopoly model is a where, are higher than costs. Given under-pric- terribly inefficient way to support access tar- ing and inefficiency of many government-con- gets, however. The small number of large ur- trolled postal monopolies, this may be a ques- ban customers posting mail in urban areas will tionable assumption. Furthermore, service stan- have to be heavily taxed (by paying stamp prices dards remain low—as suggested by the low level far above the cost to deliver their mail) to meet of trust in many postal operators. In response to the service requirements of the majority of ru- the question “do you trust your country’s postal ral users. And theory suggests it is the worst system sufficiently to have a friend mail a small type of tax, in that its very specific—operating package worth $100 to you?” the average survey on mail services only (theory suggest broad respondent in Nigeria scored the post office 1.7 taxes—like the income tax—are more efficient on a scale of one (no trust at all) to seven (com- because they distort the market less). Heavily plete trust) (Kirkman et. al. 2002).

36 QUESTIONING THE MONOPOLY-SUPPORTED POSTAL USO IN DEVELOPING COUNTRIES

taxing the large urban customer also encourages delivering a comparatively efficient cost-related substitution, which depresses the volume of the service and where the monopoly-funding-USO very traffic used to fund the USO. Furthermore, model may plausibly raise sufficient funds to the sector looses the benefit of competition support rural access, it is still far from the best (greater efficiency, more innovation) in a mar- way of extending access. ket that accounts for some major part of the traffic. A New Model The monopoly is also a suboptimal way of “com- pensating” the operator because there is no nec- At the moment in many countries the “postal essary connection with the cost of providing sector” is seen as coterminous with the post of- the USO. In rich countries, the value of the fice. It may be more constructive to view letter monopoly will be too much—in (rural, low and parcel delivery as the “postal sector”. Some population-density) New Zealand for example, proportion of letters and parcels in developing the incumbent is providing USO services with- countries are delivered via the post office, which out monopoly and at no additional cost to the is one service provider in the postal sector. The government. As we have seen, in poor coun- post office frequently also provides services in tries, any potential profits from a monopoly on other sectors, including the financial and gov- urban routes is likely to be far too little to meet ernment services sectors. any meaningful definition of universal service. A link between the value of the monopoly and It is important to make these distinctions be- the cost of universal service can be made in cause postal policy and regulation should be countries where the monopoly is “worth too primarily involved with improving the perfor- much” through regulation of pricing for mo- mance of the postal sector, not the post office. nopoly services. However, in countries with few Conversely, the post office frequently has roles profitable routes, it is doubtful that the monopoly in other sectors—it may be a vehicle for the profit-maximizing price structure would gener- delivery of a range of government services, for ate sufficient revenues to fund the USO, ren- example. Ensuring the effective delivery of this dering pricing regulation irrelevant to meet this wider range of services is the concern of many goal.13 The justification for the monopoly is parts of government—the financial regulator for not practicable, the results of the monopoly are banking services, for example, or the transport poor-quality services and low use.14 department if the post office is involved in ve- hicle license issuance and delivery. Suggesting It should be noted that the monopoly USO model that postal policy and regulation should be about can work. Trinidad and Tobago has increased improved postal sector performance, and under- household delivery to approximately 95 percent standing that the post office’s current and po- of population under the model, for example, as tential role spans many sectors, may help to part of a broader reform effort that saw postal clarify the roles and objectives for different parts volumes and revenues approximately double, of government and for the post office itself, al- and quality of service and consumer satisfac- lowing for a new model of both postal and gov- tion increase.15 But even in a wealthier devel- ernment services delivery. oping country, where the postal monopoly is

37 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Whatever is decided about the services provided cial services, or other activities. Under those cir- to every citizen, in the poorest countries the mo- cumstances, what users most want is “universal nopoly-supported USO for letter delivery is likely access” to those services, not necessarily to let- to be unworkable and damaging to consumers of ter delivery. At the same time, there are clear postal services. The first two steps on a path to economies of scope in siting services together in postal sector reform should be to abandon the one location. monopoly and seriously reconsider the postal USO. Governments provide or support a number of What would be a sustainable model to replace services that do, or it is felt should, reach the the monopoly, postal specific USO? There is great majority of citizens—from primary educa- some evidence in developing countries that in- tion and basic health care to access to polling creased private sector involvement in the incum- places, registrations, and (perhaps) postal ser- bent as part of a broader process of reform cov- vices. Some of these services can be provided ering issues such as staffing, tariffs, competition, “stand-alone,” others would benefit significantly and regulation may be of help. There should be from economies of scope. A first step towards a no monopoly for any provision of postal services. coherent “universal service” strategy would be However, either general competition laws or to decide on a list of services that governments postal-specific regulatory instruments should believe should, and feasibly can, be provided to ensure fair competition through (for example) the the great majority of citizenry and then look for enforcement of termination agreements. Build- opportunities to “bundle” those services. ing such capacity should be an early element of the reform process. Regulation of financial and “Bundling” is the idea behind postal financial other services provided would, naturally, fall un- services, the telecenter, and a number of other der the purview of the suitable sector regulator. institutions with a mixed track record. This is perhaps not the fault of the concept, but of its Looking at universal service requirements, using implementation—perhaps the wrong provider or taxes on operators may not be plausible in the the wrong services provided. These failures sug- poorest countries—there aren’t likely to be gest the importance of a community-driven exer- enough postal and logistics profits to tax to meet cise in choosing services and an entrepreneurial the costs of universal service schemes16—but it (sustainable) model for providing them. may be a second-best solution for upper middle- income countries like Trinidad and Tobago, as- How would we get from here to there? A five- suming it does not discriminate against certain step program might be: types of operators. But the issue of “universal service” is one that should be tackled—in a (a) Abandon the monopoly. It doesn’t help, and broader context than the postal sector alone— it isn’t enforced. and should almost certainly involve subsidies based on a broader tax-base. (b) Carry out basic management and financial reform of the post office—restaffing, a man- In many countries, the most important social func- agement contract, returning to financial sta- tion of the post office is not as a letter delivery bility and setting up transparent accounting mechanism, but in delivery of pensions, finan- systems. At the same time, reform and sepa- rate the postal financial system.

38 QUESTIONING THE MONOPOLY-SUPPORTED POSTAL USO IN DEVELOPING COUNTRIES

(c) Ensure the possibility of fair competition in Most services apart from government-to-citizen mail delivery as part of a postal policy and business are offered at prices that reflect costs. legal reform process This may be possible These prices would be regulated if the service by applying existing competition law and provided is an effective monopoly. A private com- enforcement to postal operators or may re- pany provides (comparatively infrequent, regu- quire specific regulatory institutional struc- lar, sustainable) physical collection and delivery tures to oversee the postal sector.17 to the franchises, picking up mail from a set num- ber of interconnection points. This company is (d) Develop a method to greatly increase pri- also selected competitively, and it receives a regu- vate sector involvement in both the retail lated (cost-based) amount per item delivered to and delivery portions of current postal op- or taken from the franchise plus (if required) an erations—perhaps including retail franchis- up-front subsidy. The company and franchises ing, and sale of the public operator’s net- would have to provide letter delivery between post work delivery functions. franchises at one price nationwide. The com- (e) As part of a participatory process, agree the pany is free to provide other postal services, but scope of bundled “universal” services to be has no monopoly on service delivery. offered by postal retail outlets (starting at a level that is minimal, implementable and Again, it is important to make the point that this sustainable), the number and approximate paper has been based largely on generalities and geographic location of the outlets needed to averages. There will be developing countries meet USO goals, and a method to select the where a monopoly-enforced cross-subsidy model delivery mechanism(s) for these services. is providing services of value to the rural poor and where they are doing so at some reasonable One possible model that would require consider- level of efficiency. Even if they may benefit from able development to be an implementable, prac- reform, the transition involved for such cases will tical solution might involve a system where there have to be carefully designed to ensure the con- is a private franchise operated by a local entre- tinuation of services. Furthermore, the record to preneur that provides communications and ser- date of reform is patchy, suggesting we have more vices in every town or village with more than a to learn about how to operationalize the competi- minimum sustainable number of people. Services tive model. may include basic finance, post office boxes (for those that want them) and postal collection, li- Nonetheless, it is likely that moving from an un- censes, registrations and pensions. The govern- workable monopoly model designed to deliver a ment, as part of a participatory process, would service in low demand, to a functioning competi- set certain minimum services and standards that tive model that delivers a range of services that must be provided by the franchise. In addition, poor people find important and that might have a the franchisee would provide any other services dramatic impact on quality of life, at little cost in it chose. The franchises (one per town or vil- many developing countries. Even taking just the lage) are auctioned to the highest bidder or, if no first steps of abandoning the monopoly postal one will pay, a subsidy auction is used. USO would be significant progress.

39 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

As a final note, it should be pointed out that aban- 7 The procedure to adjust the Cohen et., al. estimates doning a letter-post USO would pose a challenge was similar to the above except that GDP per capita for countries in their relations with the UPU. The at a given level of letters per capita was calculated UPU Letter Manual states that “…in order to from a regression of GDP on letters per capita for support the concept of the single postal terri- countries with letters/capita values within 50 per- tory of the Union, member countries shall en- cent of those listed in the table (0.5 to 1.5 letters, 2.5 sure that all users/customers enjoy the right to to 7.5 letters and 5 to 15 letters per capita respec- a universal postal service involving the perma- tively). nent provision of quality basic postal services 7 Traffic is measured by revenues, in this case. Brit- at all points in their territory, at affordable ish Postal Consultancy Service (2002) prices.” (UPU, 2001). Perhaps it is fair to say that this obligation was only introduced in the 8 Raising prices to the levels suggested by the Cohen 1990s and has since been met more in the spirit et. al. (2003a) study would be an unworkable solu- than in the letter in many developing countries. tion—this would doubtless reduce demand in favor of alternate providers, thereby further raising per- unit costs. Notes 9 Trinidad and Tobago’s price after rate increases.

10 The United States only introduced one-price de- 1 Even within the EU there remain questions as to livery in 1885 (Campbell, 2004). It is worth noting the nature of the USO—does it demand a uniform that in both the United Kingdom and the United tariff, for example? States, the postal monopoly far pre-dates one-price 2 At least not through the network captured by Uni- delivery and universal service obligations, suggest- versal Postal Union (UPU) statistics. ing that the justificatory link between the three de- veloped ex-post. 3 Regarding home delivery, many (most) poor and rural people do not live in households with a recog- 11 This appears to be the case in a number of devel- nized address, so they could not receive mail if it oped markets where competition has been intro- were being delivered. duced—for example, New Zealand and Sweden.

4 In Malawi, the figure is closer to 0.2 percent. 12 Chapter 5 notes that many developing countries with weak or non-existent regulatory structures none- 5 Cohen et. al. Provide data on prices for US quality theless see more competition than developed coun- USO at United States’ input costs for various levels tries with aggressively pro-competitive regulators of letter per capita. To adjust (at a high level of such as the United Kingdom (where Royal Mail still approximation) for differing input costs (primarily has a 99.75 percent market share). It should be noted labor), the author used a regression of GDP PPP per that the presence of de facto competition, almost cer- capita on letters/capita to obtain estimates for GDP tainly based on quality rather than price, suggests per capita at various levels of letters/capita. I then that an incumbent that improved the quality of ser- multiplied the “unadjusted” Cohen estimates by (pre- vice delivery in response to de jure competition might dicted GDP)/(United States GDP) in order to get actually see a growing market share even if it were output cost estimates adjusted for input costs. to raise its prices.

40 QUESTIONING THE MONOPOLY-SUPPORTED POSTAL USO IN DEVELOPING COUNTRIES

13 Furthermore, such efforts appear fraught with com- putational difficulties in practice and require far more market intelligence than most developing country regulators (where there are such regulators) possess (see Chapter 5)

14 Again, the history of the British postal network may provide a suggestive example here—enforce- ment of the postal monopoly by Charles I was one of many grievances of Parliament that led to the En- glish Civil War (Ogilvie, 1893). In 16th century Brit- ain, the monopoly was used to “farm” profits, whereas today in many developing countries it has some role as a source of government employment. In both cases, however, it is likely that the disadvan- tage to the consumer is greater than the advantage to the monopoly beneficiary.

15 Walsh, 2001 and comments by Juan Ianni. From 1999 to 2003 delivery times fell from one week to nearly all mail by D+2, volumes rose 133 percent, revenues 75 percent, and a consumer satisfaction index went from 50 percent to approximately 85 percent.

16 Taking China as an example, a 2 percent tax on the air express market would raise perhaps $30 mil- lion while costs of the USO can be conservatively estimated at $340 million (Chapter 5).

17 Given that there appears to be de facto competi- tion for postal services in many developing coun- tries already, despite the hurdles presented by a de jure monopoly, the need for considerable regulatory capacity may be limited.

41 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Boutheina Guermazi Isabelle Segni

Chapter 5 Postal Policy and Regulatory Reform in Developing Countries

eveloping and transition countries can of postal players (including the universal service not afford to ignore the competitive pres provider), is to be regulated. While there is no Dsures that are transforming the postal single recipe for regulatory reform, this paper sector. Rather than taking an ad hoc approach to presents the argument that valuable lessons could postal sector reform, developing countries need be derived from the regulatory experience of de- to implement a clear policy agenda that embraces veloped countries in the postal sector as well as liberalization and responds to customers’ needs from the experience of other network industries, for improved service. Any policy reform strat- notably telecommunications. These lessons need egy will have to address the complex question of to be further tailored to better suit the peculiari- universal service. This paper demonstrates that ties of developing countries’ low-volume, limited the regulatory approach to universal service used demand, and constrained finances of the postal in developed countries is ill-suited to the low-vol- environment. ume, low-demand environment of developing countries. Towards a Clear Policy Agenda A more realistic approach, based on universal for Postal Sector Reform access rather than universal service, echoes simi- lar developments in telecommunications policy In most developing countries postal reforms have and is warranted in a developing country con- not been implemented in the context of a clear text. Once the decision has been made to estab- postal sector policy. Often decisions to reorga- lish a pro-competitive, liberalized postal regime, nize the postal market and the incumbent are hast- it is essential for developing countries to put in ily taken to accommodate the timetable of the place market-oriented regulatory rules, processes, telecommunication reform or to solve, momen- and institutions by which the economic behavior tarily, a financial crisis experienced by the postal

42 POSTAL POLICY AND REGULATORY REFORM IN DEVELOPING COUNTRIES

incumbent. Governments rarely proactively de- jectives of introducing competition and disman- velop a long-term postal sector strategy, or think tling barriers to entry, and ensuring the financial through the design of an effective regulatory stability of traditional monopolies entrusted with framework to achieve the postal sector’s reform universal service mandate. In most cases, this objectives. Formulating a clear policy agenda complex compromise has resulted in a market for postal sector reform is a critical task for structure that is prone to distortions. policymakers in developing countries. This pa- per identifies two elements for sustainable policy In developing countries, liberalization of the reform in developing countries. First, the need postal delivery service has not followed a pre- to align the legal and regulatory framework with defined, well-conceived policy reform agenda. market realities; developing countries can no Rather, it is developed as an ad hoc reaction to longer ignore the phenomenon of de facto com- respond to the high cost and poor performance petition. Second, developing countries need to of the public postal operator. Unsatisfied demand revisit their approach to universal service to make has driven an unofficial liberalization process and it better suited to their postal market conditions. growing de facto competition defying the mo- nopoly. In Latin America, incumbent postal op- erators have as little as 20 percent of the tradi- Liberalizing the Market: From tional mail market due to their inefficiency and de facto to de jure Competition ongoing failure to satisfy customer demands. In other markets there is evidence of other forms of The past decade has witnessed a fundamental shift substitution to ensure that mail services are pro- in public policies for network utilities from a long- vided. Many utility companies have their own standing natural monopoly approach towards a mail distribution systems and smaller companies new paradigm embracing liberalization, open mar- have dedicated mail messengers to ensure mail kets, and the dismantling of public monopolies. delivery. Such alternative delivery mechanisms Eperience has demonstrated that consumers have show that if customers do not believe in the gov- benefited from open competition through improved ernment operated postal system, they will find service performance, lower prices, and expanded ways to ensure their mail is delivered. (See also end-user choices—benefits not otherwise secured Chapter 3: Questioning the Monopoly-Supported under a monopoly environment.1 However, this Postal USO in Developing Countries) sweeping paradigm shift has not effected all utili- ties equally. Postal services have lagged behind Given the failure of the public operator to pro- other utilities in responding to this evolution in vide a better and more reliable postal service— economic thinking. In most countries the postal and the increased customer pressure for such ser- sector continues to rely on government ownership vice—developing countries can ill-afford to ig- and reserved areas designed to promote socially nore competitive pressures that are already in- equitable access. The vestiges of the monopoly formally transforming the market. A clear policy survived even in countries that opted for liberal- agenda responding to customer needs should be ization as a method of sector reform. Unlike lib- articulated and implemented. New postal laws eralization in other utility sectors, postal sector reflecting market liberalization strategies are the policymakers in developed countries are continu- next major milestone in developing countries’ ously attempting to compromise between the ob- sector policy reform.

43 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

From Universal Service to censing fee structure that is based on clear Universal Access economic analysis, or to assess the real cost associated with the USO. Defined as “an obligation to provide a ubiqui- (b) Both the monopoly and the license fee tous service at a uniform price at a reasonably schemes create potential impediments to uniform standard of quality,” and long consid- sector development: monopolies lack com- ered a cornerstone for the postal sector, the con- petitive pressures to improve the cept of universal service has recently come un- incumbent’s performance, while high taxes der intense pressure. Its relevance as a sustain- can deter efficient private operators from able public policy goal is also being questioned. entering the market, hence, potentially lead- ing to unmet demand. In a low-volume, low-demand environment the traditional monopoly-supported universal ser- (c) Furthermore, in developing countries, the vice—as experienced in high mail-volume indus- monopoly approach is a major burden for trialized countries—is of limited relevance (for a the government. The public postal opera- detailed economic analysis, see “Questioning the tor often represents a significant fiscal bur- Monopoly”). The USP can be compensated for den on the state budget. Forty-five percent the burden of universal service obligations (USO) of countries with GDP per capita under through different schemes. The most frequently $5,000 have postal revenues below operat- used scheme is that of the reserved area from ing expenses (let alone total costs). Almost which revenues are generated to cover the cost of three-quarters of African public postal op- USO. Another scheme is a universal fund in erators reported a negative net result, and which all sector operators contribute – usually this figure could well be under-estimated due through license fees – to support the universal to unreliable accounting data reported by service.2 Lastly, direct and indirect subsidies3 operators.6 In some countries, the magni- allow the USP to receive compensation for the tude of cumulated losses (up to 2 percent of extra costs related to USO. However, all these GDP in one case) is such that governments schemes have shortcomings: are unable to find politically and fiscally acceptable schemes to bail out the public postal operator. (a) In an environment with an average of less than one letter item per capita, per year, rev- (d) The obligation to provide universal service enues coming from a letter monopoly are amounts to providing often excessive cross- unlikely to cover the costs associated with subsides between high-cost and low-cost USOs (particularly the fixed-costs of post routes and subsidies from the state budget. offices throughout the national territory, and Subsidy schemes might not be sustainable. over-staffing with civil servants).4 Equally, In a competitive environment subsidies it is unlikely that taxing private postal op- (whether direct or indirect) risk a lack of erators at an acceptable level will raise transparency (in the absence of cost ac- enough resources to cover the USO costs.5 counting system) and can jeopardize the In addition, regulators do not have access level-playing-field between competitors. to sufficient information to define a fair li-

44 POSTAL POLICY AND REGULATORY REFORM IN DEVELOPING COUNTRIES

(e) Finally, universal service in developing with innovative interconnection schemes could countries is no more than a “legal fiction”. enhance the provision of universal service in re- Although the network of post offices often mote areas, at lower cost. In addition, offers the largest outreach to rural areas, policymakers should take into consideration the there is no real “universal access” level.7 current trend to bundle a variety of services dis- Delivery is infrequent, mail service is not tributed through the postal network (government, secured nor is it reliable, and there is only financial, communication, see “Reinventing the limited home delivery due to the absence of Post Office”). addressing systems.

This discussion shows that the traditional ap- Towards an Effective Postal proach is not suitable for developing countries. Regulatory Framework Instead of focusing on an ill-defined, all-encom- passing universal service that is not justified eco- Once the decision is made to establish a liberal- nomically and is beyond the reach of developing ized postal regime, it is essential that developing countries, governments are better off rethinking countries put in place a regulatory framework to the notion of universal service concept. An evo- ensure a smooth transition from a monopoly-re- lution is needed from a static idealistic universal gime to a market-based regime for postal service service to dynamic and realistic universal access delivery. Market-oriented regulatory rules, pro- schemes. This proposal is far from revolution- cesses, and institutions by which the economic ary in the context of utility networks. In the tele- behavior of postal players (including the USP) is communications sector for instance, many devel- to be monitored are key to securing the oping countries have reached the conclusion that sustainability of the reform. in their environment the Western concept of uni- versal service is unrealistic. Instead, developing Similar to other networked industries, regulation countries have their own version of universal ser- in the postal sector may be needed to ensure vi- vice, wherein public access to telecommunica- able competition (starting with aligning the legal tions services is at an acceptable distance from and regulatory framework to the actual level of people’s homes. The mechanisms chosen to sector competition), correct market failures, and achieve universal access cover a range of policy protect both consumers’ and investors’ interests. options. Examples include: pay phones, public In a perfect competitive scenario these goals could call offices, and community telecenters. be reached by unleashing market forces. How- ever, in the context of developing countries a Given the peculiarities of the postal sector and purely laissez-faire approach—subject only to the legacy of universal service, policy reform is general competition law—may not be adequate needed to rethink the extent and form of a postal to protect public interest, at least immediately universal service policy, and define innovative and given the lack of strong antitrust and competi- sustainable funding mechanisms to reduce the tion law tradition. Industry specific regulation fiscal drain on governments. Formulating inno- may be required. vative access schemes and their implementation is by far the most important policy challenge in a While there is no single recipe for regulatory re- liberalized framework. Smart subsidies combined form, this paper presents the argument that les-

45 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

sons could be derived from the regulatory expe- Paradoxically, even in developed countries that rience of developed countries, in particular the have introduced full liberalization, the historical European Union’s (EU) approach, in the postal postal operator still maintains market shares sector as well as from the accumulated experi- above 90 percent; either because of regulatory ence of other network industries, notably telecom- barriers to entry (in the form of excessive license munications. conditions, for example, Sweden)9 or what can be seen as the natural monopoly dimension of postal services (New Zealand).10 Some countries International Postal Regulation have established a strong regulator in charge of Experiences implementing an aggressive liberalization strat- egy, yet the historical operator maintains a strong Worldwide, postal experience suggests that com- dominant position as well (United Kingdom). petitive pressure has resulted (in most cases) in improved service performance, increased end- user choices, lowered prices, and increased com- The European Commission’s petitiveness of the business sector which relies Approach to Phased on postal services as an input for transporting Liberalization and delivering letters (bills, invoices, statements issued by the public or the private sectors) and The EU has followed a systematic and consen- physical goods (parcels, packages, usually sus-building approach to reform the postal inter- shipped by the private sector). nal market. In the early 1990s it began by defin- ing a regulatory framework that according to Mr. Countries have adopted different regulatory ap- Frits Bolkestein, the European Commissioner in proaches and policies to ensure viable competi- charge of the Internal Market, would “…give tion in their postal sector. In rare cases (notably users the benefit of competition while maintain- in New Zealand) full unrestricted competition has ing the availability of affordable services to all.” been introduced in all segments of the market with A key issue tackled by the 1997 and 2002 postal the aim to maximize the benefits of competition directives was to introduce a distinction between in the market.8 New Zealand embraced a light- universal and nonuniversal services. handed approach to regulation and let market Nonuniversal services cannot be reserved and are forces set the final rules-of-the-game, subject to thus open to competition. For universal services antitrust laws and enforcement of competition to the directives set out a set of maximum reserved prevent anticompetitive practices of dominant areas (Table 1). The EU plans for full liberaliza- firms. In the majority of cases including Austra- tion of the postal market in 2009 although this is lia, Canada, the United Kingdom, and the United unlikely to be confirmed before 2006. States policymakers preserved monopoly status for their incumbent postal operators for specifi- The Directives also established minimum require- cally defined services in order to fulfill their uni- ments for universal service which include all versal service mandate. In these cases a differ- postal items to 2Kg, domestic parcels to 10Kg ent regulatory approach has prevailed based on and incoming international parcels to 20Kg. It the need for oversight of rates and services and goes on to specify collections and deliveries must for safeguards against cross subsidies. be carried out five days per week (Monday to

46 POSTAL POLICY AND REGULATORY REFORM IN DEVELOPING COUNTRIES

postal regulation. Over the years, regulatory Table 1. EU universal service experience has grown in areas like licensing of maximum reserved areas competitive service providers, mandatory inter-

Weight Limit Price Limit connection rules, price cap regulation, targeted 1998-2002 350 g 5 times tariff universal service funds and mechanisms, and 2003-2005 150 g 3 times tariff 2006-2008 50 g 2.5 times tariff privatization. This experience was distilled into an international trade instrument, the Reference Friday) and has targets for routing times of cross Paper (RP) on regulatory principles. border mail (85 percent J+3, 97 percent J+5). Member states have the freedom to work within The RP consists of a negotiated set of common these requirements (some member countries have guidelines for a pro-competitive regulatory frame- collections every day of the week and six deliver- work that Members party to the General Agree- ies per week) and can establish their own regula- ment on Trade in Services (GATS) have attached tions concerning network access, complaints and to their schedules as additional binding commit- redress, for example. ments in the context of the BTA concluded in 1997.11 The RP is celebrated as a major accom- The phased approach to liberalization chosen plishment of the Basic Telecommunications by the EU, together with a sector wide consul- Agreement. It is the first international instru- tative process, and constant monitoring and ment that compiles guidelines for a global regu- evaluation of liberalization impact is relevant latory framework to guarantee that trade liberal- to developing countries. Given the heightened ization is not impaired by domestic regulatory political and social resistance to an outright and measures. This harmonized set of regulations immediate liberalization of the sector—even deals with six regulatory principles including though it makes sense economically—the phased competitive safeguards, interconnection, univer- approached could be perceived as a pragmatic sal service, licensing, allocation and use of scarce sector reform scenario for developing countries. resources, and the creation of an independent Efforts to analyze the current market situation regulator. (supply, demand, use of technologies, contribu- tion to the economy, and spillover effects, etc.) Many proponents of the RP’s approach have ad- will provide a baseline against which govern- vocated the importance of adopting a similar ap- ments can assess progress in reform implemen- proach in other “network industries,” especially tation and regulatory effectiveness, and define those that are prone to regulatory barriers. In the next stages of liberalization. this context, specific proposals to adopt a simi- lar approach to postal and courier services have been tabled in the current round of GATS nego- Lessons from the tiations (Box 1).12 Telecommunications Sector: Is a Reference Paper on The argument is that, given the gradual opening Regulatory Principles Required? of the sector to competition and the ongoing in- cremental reduction of “reserved” services in Market-oriented regulatory reform in the telecom- many countries, regulatory authorities are likely munications sector offers many references for to face issues that are similar to those encoun-

47 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Box 1. Chile Negotiated during the Uruguay Round of multilateral trade negotiations, the GATS is the first multilateral framework for the global liberalization of trade in services. The GATS rules and disciplines extend to all services except those provided in the exercise of government authority. Despite the prevalence of government ownership of postal services in the overwhelming majority of countries, GATS ambit extends to postal ser- vices which, in most cases, are provided on a commercial basis and/or in competition with private suppliers. Postal services liberalization at the international level has been mainly driven by large private sector competi- tors in the postal sector. At the end of the Uruguay round, only a few WTO members undertook commitments in the postal/courier sector. When looking at these commitments, it seems that members were concerned about ensuring their prevalent monopoly situation and preserving postal universal service. Since then, progress has been made towards the continuing liberalization of the postal/courier sector. With the ongoing round of trade negotiations, deeper liberalization is expected in the postal sector, supported by specific offers and commit- ments, and possibly even a postal RP.

tered in the liberalization of the telecommunica- Another interesting aspect of the RP is its com- tions sector. mitment to adopt general competitive safe- guards—specifically those curtailing cross-sub- The issue of postal universal service dominates sidization to ensure an undistorted competitive discussions on encouraging competition, creat- environment. Disciplines on public availability ing a level-playing-field, and acknowledging cus- of licensing criteria are also relevant in the con- tomers’ interests. In this regard, the most rel- text of liberalization of the postal sector as li- evant aspects of the telecommunications RP are censing can become a regulatory tool to erect those related to universal service and general barriers to market entry. The RP’s disciplines competitive safeguards. Under the RP, regula- on independent regulators are particularly rel- tions pertaining to universal service are not per evant in the postal sector as many countries still se prohibited. However, to be compatible with preserve the ties between the operator and the an open competitive environment, USOs have to regulator (as will be seen later in greater detail). satisfy four conditions: they must be transpar- Finally, it is important to assess the implications ent, nondiscriminatory, competitively neutral, and of cost-based principles (as those related to in- not more burdensome than necessary for the kind terconnection in the RP) on terminal dues and of universal service defined by the member. tariff setting practices. The move toward a postal Application of these principles will have far- RP is potentially controversial and calls for a reaching implications in revisiting the scope of deeper analysis of the tensions between the rules postal universal service, and reserved and and practice of the Universal Postal Union and nonreserved areas in many countries. Such an those of the GATS.13 approach, if applied to the postal sector, can go far in reconciling universal service objectives with the workings of competitive markets.

48 POSTAL POLICY AND REGULATORY REFORM IN DEVELOPING COUNTRIES

From Policy to Implementation tory institution, or in a multisectoral regulatory body, as several support functions can then be In addition to facing the traditional issues of regu- shared to reduce overhead costs. Another argu- latory reform (those pertaining to institutional ment in favor of placing postal regulation within design, effective regulatory processes, and trans- an existing regulatory institution is that it might parent regulatory procedures), developing coun- accelerate the learning curve of the postal regu- tries need to tackle sector specific regulatory is- lation team through knowledge transfer from col- sues in order to find innovative ways to encour- leagues working on other sectors. France, Mali, age liberalization and competition in the sector and Senegal have recently opted for this choice. (under extreme market limitations and fiscal con- straints) while preserving the goal of a sustain- able, market friendly universal service policy. Improving Regulatory Capacity Several recommendations are given below to help developing countries in their design of a sound Human resource constraints are a major handi- postal regulatory framework. cap for developing countries to establish and implement effective regulatory frameworks. Regulating the economic behavior of market play- Institutional Requirement: ers requires adequate economic, financial, tech- Regulatory Governance and nical, and legal capacity. Without such capaci- Independence ties regulators do not have the tools to under- stand the market, analyze cost data, or measure Establishing a regulatory framework for the the operators’ performance. postal sector requires both substantive rules per- taining to universal service, licensing, pricing, and design of regulatory institutions. The role of a Adjusting the USO regulator as a referee in enforcing the rules be- tween market players is crucial for a successful Expertise in the market is particularly important competitive market. For many developing coun- when adjusting USOs to reflect market capacity tries poorly planned regulatory reform will lead and citizen demands. There is room for adjust- to negative outcomes. Failure to adopt effective ment on the extent and form of the postal pres- frameworks that foster competition may “scare- ence (franchising the postal network), as well as away” potential players. on the quality of service (frequency of delivery in rural and remote areas, delivering time adjusted The institutional design of the regulator impacts from D+1 to D+5 for instance; place of delivery, its relationship with the policymaker, its account- including post office boxes vs. home deliveries) ability, and its autonomy. To avoid potential con- and tariffs (cost-based tariffs reflecting the addi- flicts of interest, the postal regulator should be tional cost to deliver in remote areas).14 The im- independent of the operator and (preferably) of pact of those adjustments to the USO should be the policymakers. Yet in a fiscally constrained assessed financially by the regulator so as to environment, a stand-alone postal regulatory body monitor the subsidy scheme aimed at supporting might not be warranted: postal regulation could the USP. In this regard, the regulator should also be located within the telecommunication regula- encourage the USP to set-up a cost accounting

49 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

system compliant with international standards. the public operator), liberalize the sector (or not), Cost information provided by a reliable cost ac- nor is there transparency on the licensing scheme counting system would help to reduce the debate that the authorities may develop. around the reliability of USO-related informa- tion provided by the USP. Conclusion

Establishing Transparent and An effective policy and regulatory framework is Accountable Regulatory key for postal sector growth. Few developing and Processes transition countries have taken the trouble of as- sessing their postal sector, its performance and Efficient and effective regulatory processes are potential, as well as the policies and regulations needed to reach the benefits anticipated from that may foster its development. Too often, ad the reform exercise. Accountability of the regu- hoc policy or regulatory measures are taken to lator is an important guarantee for existing op- deal with specific issues, such as express and erators and potential entrants. Investors need courier competition, office closures, postal defi- institutional reassurance that the regulator will cits or diversification attempts. These measures, not be captured by dominant operators. A pro- taken outside an overall postal sector strategy, cess of appeal of regulatory decisions to juris- rarely yield sustainable progress. The body of dictional or administrative bodies (depending on sector reform experience is slowly growing, and each country’s institutional setting) may there- the European Union, as well as several other fore be warranted. countries, offer interesting approaches to sector reform which should help policymakers in devel- Transparency is also needed to increase the le- oping and transition countries. No universal blue- gitimacy of the regulatory exercise. It increases prints are available, however, and reform needs the pressure on the regulator to ensure open- to be tailored to the specific circumstances of each ness, fairness, and objectivity of the regulatory country. Further data collection, analysis, and decisions. Transparency of the decision-mak- research would be needed to take stock of reform ing process can be guaranteed with the manda- experience to date and articulate best practices tory publication of regulatory decisions, as well relevant to developing and transition countries. as increasing public participation in important policy decisions. Notes A postal regulatory system that is not optimized can hinder sector development. In China, some 1 “Reforming Infrastructure: Privatization, Regulation observers estimate that the express mail segment and Competition, A World Bank Policy Research Re- could triple in value in view of the tremendous port, 2004. business opportunities in the country. Yet the regulatory framework is currently a disincentive 2 This scheme is common in the telecommunication for private sector investment as there is no vis- sector, and is also stipulated by the 1997 European ibility in terms of government intentions to regu- postal directive; it has not yet been successfully at- late the sector (regulation is still implemented by tempted in the postal sector.

50 POSTAL POLICY AND REGULATORY REFORM IN DEVELOPING COUNTRIES

3 Direct subsidies from the state budget, approved an- 9 Posten AB’s license features: every week-day deliv- nually by the government, or some derogatory tax re- ery (and at least five times a week), at least one clear- gimes. ance and one delivery per week day, high delivery stan- dards (85 percent overnight, 97 percent within three 4 The cost of USOs is seldom accurately assessed due week-days), uniform prices for single piece mail with to the absence of cost accounting in most public postal a price cap limiting price increases to the rate of infla- operators. Cost accounting systems are required, espe- tion. In “Regulatory Challenges in the Liberalized cially in the cases where the post office provides both Swedish Postal Market,” Jonsson (Conference on Postal mail-parcel services, and financial services through- and Delivery Economics, Cork, Ireland, June 2004). out the network. However disagreement remains on the best methodology to use (the European Commis- 10 In New Zealand, an individual or company is able to sion has favored the net avoided cost method, while register as a postal operator with the Ministry of Eco- other stakeholders prefer the entry price method). nomic Development; a one-off application fee of NZD 95 ($62) is payable. In “The Liberalization of Postal 5 For instance in China, taxing the private postal op- Services in New Zealand,” Harford (Conference on erators present in the air express market (valued at $1.5 Postal and Delivery Economics, Cork, Ireland, June billion) would raise less than one-tenth of the resources 2004). needed to support the cost of the universal service. The European Commission estimated the average cost of 11 The BTA was negotiated under the World Trade Or- the USO at about 5 percent of revenues in industrial- ganization (WTO) and is appended to the GATS as its ized countries (likely to be relatively superior in devel- fourth Protocol. It contains specific market access and oping countries). Considering that China Post posted national treatment commitments in basic telecommu- $6.8 billion of revenues in 2002, we would have an nications services as well as a set of regulatory prin- theoretical estimated cost of USO at $340 million (most ciples. This agreement covers basic telecommunica- likely in the low end of the actual cost). Taxing at, say, tions services whether local, long-distance or interna- 2 percent the express mail private operators would raise tional. It includes services for public and nonpublic about $30 million, one-tenth of the cost of USO. use provided on an infrastructure basis as well as through resale. It covers telecommunication services 6 Source: Universal Postal Union - http://www.upu.int/ provided by any means of technology including cable, statistics/en/index.shtml wireless, and satellites. 7 There is one post office for about 3,000 inhabitants in 12 See European Union’s proposal: http://europa.eu.int/ France, compared to one for 102,000 in Mali and one comm/internal_market/post/doc/activities/job_en.pdf. for 187,000 in the Democratic Republic of Congo. Countries with GDP per capita under $1,000 have on 13 Study of TMC Asser Institute, The Study of the Rela- average a post office for each 4,700 square kilometers tionship Between the Constitution, Rules and Practice of territory compared to one office per 458 square kilo- of the Universal Postal Union, The WTO Rules and meters for countries with GDP per capita above $5,000. the European Community Law, The Hague , 30 June 2004 ( Unpublished Manuscript). 8 Volner, Brickman, Field, Postal reform: A Compara- tive Analysis and Critique of Regulatory Models – 14 Regarding the nonuniform tariffs, numerous hurdles/ (Rutgers Conference on Postal and Delivery Econom- technicalities of accounting systems, inconvenience for ics, Cork, Ireland) 2004. the clients, explain that such cases are rare.

51 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Isabelle Segni Juam Ianni

Chapter 6 Case Studies on Postal Sector Reform

he World Bank has been involved in postal Tanzania has managed to break-even in an envi- reform projects throughout the world. ronment where mail volumes are less than one TThis paper looks at three of those projects per capita per annum, by introducing prudent in three very different countries; Morocco, Tan- performance and service objectives. Morocco has zania, and Trinidad and Tobago. The case stud- consistently made profits since its reform, in part ies review the reform process undertaken in each due to its more conservative operational targets of the three and analyses the impact of the re- than in Trinidad and Tobago. However, each can forms with respect to performance, financial vi- be termed a success because they have all trans- ability, and sustainability. formed their business from one with low customer perception to one providing reliable and secure In each of the three case studies, four reform el- products and services. ements were key: (a) commercialization of the operator; (b) improved operational performance Legal and regulatory reform has occurred to some of the operator; (c) improved financial perfor- degree in all three countries but market liberal- mance of the operator; and (d) legal and regula- ization has not progressed as expected. Only tory reform of the sector, including progressive Tanzania has reduced its reserved area to 500g liberalization. while Morocco maintains a 1,000g limit, and Trinidad and Tobago a 2,000g limit. This has All three countries have become more commer- resulted in limited domestic competition in each cially focused and all have performance contracts country. Tanzania also remains the only country with government in the areas of quality of ser- to fully separate the regulatory function from vice, customer satisfaction and financial perfor- government, although the separation is planned mance. This has led to improvements in each of in the next phase of reform in Trinidad and To- those areas although there appears to be a trade- bago as well as in Morocco, albeit with no change off between quality improvement and financial to the reserved area. performance. Trinidad and Tobago has made the greatest quality improvements extending network The three case studies provide evidence of the coverage from 50 percent to 96 percent of the benefits of undertaking postal reform, but also population. However, they have failed to become identify some of the trade-offs that must be made financially viable during the five years of reform between financial viability and universal service despite growing volume by over 150 percent. coverage in a developing country context.

52 CASE STUDIES

came from mail and parcels and the remainder Morocco from postal financial services.1 The postal rev- Successful Public Postal enues of ONPT grew by 5 percent from 1995 to Operator Restructuring but 1998, although the average number of mail items Delayed Sector Reform per capita remained under 8 and has stagnated over the last years. The number of permanent post offices also grew by 5 percent over the same Pre-reform Postal Situation period to 1,469 offices in 1998, and while all of- fices accept financial transactions, fewer than half Market and Regulatory offer a full-range of postal services. Environment

Mail and domestic express services were the le- Reform Impetus and Strategy gal reserve of the monopoly postal operator “Of- fice nationale des postes et telecommunications” Reform Environment (ONPT) which also had some regulatory respon- sibilities. The ministry responsible for posts was In 1988 the Government of Morocco split ONPT also in charge of the policymaking and some regu- into two government-owned companies, Itissalat latory functions. Only the international express Al Maghrib (IAM, the public telecom operator) segment was open to competition with DHL be- and Barid Al Maghrib (BAM, the public postal ing a major player in the market. In absence of operator). This institutional restructuring was an appropriate regulatory framework, interna- mainly driven by the telecommunications sector tional express carriers paid a fee to the public reform agenda, which aimed at a progressive lib- postal operator, as a contribution to the univer- eralization and privatization of the incumbent. sal service cost. For the postal sector, a more cautious approach was taken: BAM was created under public law Although the postal sector represents a small part as a state-owned “établissement public à of the economy (0.2 percent to 0.3 percent of caractère industriel et commerciall” (EPIC),2 GDP), its social importance is significant if we and the government maintained a reserved area take into account the universal postal services up to 1kg for letters. and the postal financial services through which ONPT provided basic financial services to many In 2001, the government adopted a postal sector low- to middle-income households. strategy, which was included in the sector policy letter for the information infrastructure develop- Public Operator Status and ment. This inclusion signaled the government’s Performance view of potential synergies between the postal sector and other elements of the information in- As an office nationale, the incumbent was insti- frastructure (for example, telecommunications tutionally distinct from the administration, with and the Internet). an autonomous budget, but managed by processes similar to those of the central administration. Approximately 70 percent of ONPT’s revenues

53 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Postal Reform Strategy BAM has defined and implemented its corporate objectives through a thorough reorganization, The sector policy letter noted three general ob- including territorial decentralization, and man- jectives for the postal sector: (a) implementing agers’ accountability on performance (based on progressive sector liberalization, (b) increasing agreed objectives and means). BAM hired (with BAM’s competitiveness through commercializa- internal financing) a consulting firm to work, to- tion and status change (if necessary),3 and (c) gether with BAM, on the planning and imple- developing postal financial services to improve mentation of the reorganization. access to finance and channel postal savings to the private sector. BAM has exceeded expectations in its strategic turnaround. Since its separation from telecom- The progressive liberalization, a key component munications it has been consistently profitable, of the reform agenda, has not yet been imple- avoiding burdening the government with subsi- mented, but BAM’s competitiveness has made dies (a pre-reform prediction). Through training satisfactory progress, as detailed below. and capacity building programs most staff have gained exposure to the new market-oriented cul- Regulatory Reform ture and management tools. Several senior man- agers have been hired from the private sector. While the telecommunications regulatory body, Business agreements with private partners have Agence nationale de régulation des telecommu- developed, and greater outsourcing to the private nications (ANRT) was created, the ministry in sector is underway to optimize operational and charge of the postal sector continues to share the financial performance. regulatory function with the incumbent. BAM still collects the license fee levied on international One of the major instruments of the renewed dia- express operators. However a postal law is be- logue between the operator and the government ing drafted that provides for ANRT to expand its has been the performance contract. Although the mission to include postal regulation. contract does not carry a formal incentive sys- tem (such as rewards if BAM meets its objec- Three years after the adoption of the sector policy, tives [and penalties if it does not]), it offers the further liberalization of the postal sector has not opportunity for the stakeholders to analyze the been realized. government’s development objectives and to de- fine the conditions under which the public opera- Commercialization of the Public tor can meet them. There are four categories of Operator and Performance performance indicators that have been monitored Agreement for 2002 to 2004:

The Prime Minister presides over BAM’s board • Operational indicators: creation of post of directors, which is comprised of representa- offices and distribution routes; number of tives of eight ministries. Management and fidu- letter items handled; deposits amounts and ciary autonomy and responsibility are relatively number of accounts for CCP and CEN; limited, for instance, procurement of contracts number and amounts of money orders; de- above a certain threshold are subject to a priori livery time (D+2); number of claims for let- control from the Ministry of Finance. ters and money orders;

54 CASE STUDIES

• Investment indicators: quantitative and Reform Results qualitative objectives of investment are specified; Measuring Progress

• Financial indicators: 11 indicators reflect- While the overall reform framework was balanced ing economic, financial, treasury produc- the objectives and components appeared to be too tivity performance; ambitious given the government’s limited capac- • Human resource indicators: structure of ity to implement the reforms. staff and training budget are specified and monitored on the basis of quantitative tar- The performance contract for 2002 to2004 pro- gets. vides a good framework for evaluating BAM’s performance since 1998. As of 2002, BAM has Progressive upgrade of information systems al- successfully met most of its objectives, and ex- lows BAM to more efficiently collect and aggre- ceeded them in terms of financial performance. gate operational and financial data generated throughout the network. Sector-wise, the reform objectives have not been met, whether in terms of further liberalization, Sequencing or in terms of regulation. Lack of market intelli- gence makes it difficult to assess sector growth The postal sector reform began as a subset of the or customer satisfaction. Hence the analysis be- telecommunication reform. Although the postal low concentrates mostly on BAM’s results. sector policy was developed well into the telecom- munications reform, it already needs to be updated. Volumes and Financial In 2004, the government initiated two studies, one Performance on universal service,4 and the other on the devel- opment of postal financial services. The govern- While mail volume has only slightly increased ment will use the results to finalize a new postal (Chart 1),6 BAM’s financial turnover (driven by law that emphasizes further liberalization, a bet- postal financial services and other sources of rev- ter regulatory framework, and the transformation enues), has increased by more than 45 percent of BAM into a joint-stock company. over the 1998 to 2003 period (to 1,137 million dirham [MnsDH] in 2003), while net revenues World Bank Participation have tripled from 55 MnsDH in 1998, to 153 MnsDH in 2001. Domestic express activities The World Bank’s support to Morocco’s postal have grown the most significantly over this pe- sector reform has been limited to technical assis- riod, reaching 16.5 percent in 2002, while postal tance support.5 However regular policy dialogue financial services deposits have increased by 11 with the stakeholders has yielded ideas and prin- percent in 2003. Net revenue in 2002 and 2003 ciples drawn from international best practice. decreased as BAM funded its retrenchment plan Currently the World Bank is encouraging the (about 1,000 staff, Chart 2) which represent a government to update the sector policy and ac- short-term cost (on incentive departure packages) celerate the reform of the legal and regulatory with an expected medium-term return (reduced framework. staff costs, improved efficiency).7 In 2003 this

55 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

translated into a 24 percent rise in productivity Quality and Customer Satisfaction (increase in value added per employee).8 Several investments (marketing and capacity BAM is implementing a cost accounting system building efforts) were undertaken to improve to allow better identification of cost and profit cen- quality of service. Customers are enjoying im- ters, and to provide more reliable information rela- proved services—counter automatization (430 in tive to the cost of universal service and pricing. 2002, representing 95 percent of counter turn- over), upgrading applications and information Coverage systems, and the creation of a call center. Cus- tomer lines in post offices are closely monitored, With about 1,500 post offices, BAM has the most resulting in organizational changes to optimize extensive network in the country, although the service. At this stage, most of the improvement ratio of post office per inhabitant remains low by in quality has benefited business clients, as well regional standards (1 for 18,000 in Morocco, as customers of postal financial services. The versus 1 for 9,000 in Algeria, and 1 for 8,000 in delivery time of mail remains lower than expected, Tunisia in 2002). There has been a slight im- with less than 60 percent of mail delivered on provement in urban and rural areas.9 Efforts to D+2 (2002 statistic). increase access are being considered taking into account BAM’s financial sustainability. Solu- With better service the number of claims has tions such as franchising are being examined. dropped dramatically. Improving customer rela- tions is now a priority for BAM, though a sys- Recently BAM implemented a geographic infor- tematic customer satisfaction survey has yet to mation system (GIS) to provide a better picture be initiated. of the adequacy of coverage between population repartition and postal presence.

Chart 1 - BAM letter volume Chart 2 - BAM financial performance 100000000 350.00 300.00 Letter 80000000 domestic 250.00 (Mns) 60000000 200.00 Letter 40000000 150.00 international 20000000 100.00 (Mns) 50.00 Total letter 0 0.00 (Mns) 1998 1999 2000 2001 2002 Operating revenue Operating expenses 1998 1999 2000 2001 2002 Operating income

56 CASE STUDIES

Investment and Innovation sibly a subsidiary) with more or less extended capacities in financial, banking or nonbanking BAM has initiated a program to upgrade and in- services. novate commercially. It started a joint-venture with Chronopost for international express mail, it launched a new domestic express service, and What Went Right, it introduced a pilot hybrid mail center in 2003. Areas for Improvement Electronic payments are also increasing through the deployment of ATMs. BAM has acquired a What Went Right GIS to facilitate informed strategic decisions rela- tive to its postal network. It developed a national The most visible success is the commercial ori- address database that is the starting point to de- entation and financial sustainability of BAM, il- velop direct marketing activity. BAM is currently lustrated by the self funded modernization and investing in a large hub to support logistics of its the increase in volumes realized through those e-commerce activities (storage, ordering, prepa- investments. Prior to BAM’s separation from ration, stock management, shipping and delivery). Itissalat, few observers would have anticipated such a success. This can be partially attributed Overall Market Development to the vision of its managing director and the com- mitment of the upper management team to re- Today there is not a government entity that is form the organization, and also to the existing capable of regulating the market, or of providing market conditions. Morocco has a thriving busi- comprehensive data on the market—and the Min- ness environment that provides room for market istry has limited capacity and resources to per- expansion through fulfilling unmet demand for form these tasks. There are five international postal services, assuming that BAM can provide express carriers identified in the market, exclud- an acceptable level of quality of service. ing the recently created Chronopost-EMS joint- venture, demonstrating that the Moroccan inter- Areas for Improvement national express segment is attractive. License fees are collected by BAM (which has the right Morocco is facing the traditional “ universal ser- to audit operational and financial accounts of its vice dilemma”: how to increase access without competitors). Given the lack of detailed account- having a negative impact on BAM’s financial ing information it is not clear whether BAM uses viability. The government, through the perfor- revenues from reserved areas to cross subsidize mance contract, is encouraging BAM to increase those in the competitive domain. For the remain- access through physical presence (the contract der of the postal market, it is impossible to as- monitors the number of new post offices), instead sess volumes, values, market shares, output, per- of through alternative access options (franchise formance, or trends. or other private-public partnership). This will lead to increased fixed-costs for BAM with mar- Regarding postal financial services, the Treasury ginal additional revenues realized. Department is currently analyzing possible de- velopment strategies, which could mean retain- With a reserved area of 1,000g the government ing the status quo, or creating a new entity (pos- has not achieved its objective of market liberal-

57 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

ization although the monopoly is not enforced and BAM faces de facto competition. BAM has announced that it is ready to open the sector to competition, though the policymaker is hesi- tant to formally liberalize the market. The World Bank supports the preparation of the draft law that will propose lowering the scope of the re- served area, and provide for an adequate regu- latory framework and universal service funding mechanism.

The government has been slow to address the conditions to develop postal financial services— an important objective in the postal sector policy. The outcome of the ongoing study might call for a substantial institutional modification (cre- ation of a subsidiary, new conditions of remu- neration for CCP, and savings deposits by the Treasury and the Caisse des depots et de gestion). This mirrors the delay experienced in preparing a new draft law. The slow pace is a handicap for BAM as it is ready to change its status to “limited company” to have greater com- mercial autonomy.

Sustainability

Morocco’s postal reform has a promising future, provided the government can quickly update its postal legal and regulatory framework, and modify BAM’s status. The government and BAM should now build for this future by preparing the new performance contract (2005 to 2007).

58 CASE STUDIES

average 22 percent per annum; and parcel traffic Tanzania decreased by almost 50 percent from 1992 to Solid Performance for a 1993. Performance was not monitored in areas Low-income Country, but such as quality of service, customer satisfaction, Uncertain Sustainability volumes, or revenues. Prior to reform, the pub- lic operator was organizationally and financially dependent on the public telecommunications op- Pre-reform Postal Situation erator, and functioned as a dependent agency within the Tanzanian Post and Telecommunica- Market and Regulatory tions Corporation (TPTC). The Post Office Sav- Environment ings Bank functioned as a separate entity within the Ministry of Finance but provided access Tanzania’s postal market is limited by low GDP through the postal retail network. per capita (610, PPP 2001), minimal economic and commercial activity, and weak information and transportation infrastructures. Over 80 per- Reform Impetus and Strategy cent of mail flows involves business-to-business or business-to-customer communication with the Reform Environment largest demand from utilities (water, telecommu- nications, electricity) and banks. Since less than During the late 1980’s and early 1990’s, the gov- 10 percent of the population has access to grid- ernment, with the support of the World Bank based electricity and 1.7 percent to fixed or mo- Group, initiated a program to restructure its pub- bile phones,10 Tanzania’s low annual per capita lic services to increase efficiency and lower costs. mail volume of 0.73 items is not surprising.11 For the communications sector a critical first step Prior to reform, several unlicensed private op- in this reform process was to separate the postal erators functioned in an unregulated market even and telecommunications functions (as is common though a reserved area was stipulated in the ex- in other African countries). This implied that isting postal and telecommunications law. The subsidies from telecommunications would end, majority of these private providers are classified meaning that the public postal operator would as “indirect” communication services such as need to be financially viable. freight transporters, bus companies, or individual travelers. Postal Reform Strategy

Public Operator Status and The Tanzanian postal reform strategy was based Performance on a highly structured, three-stage approach:

The pre-reform public operator showed little or n To establish a strong regulatory environment no commercial orientation and offered a limited and an autonomous public operator; product line and suffered from a low public im- age mainly due to unreliable service. For the n To develop a contractual (performance) four years preceding the commercialization of the agreement establishing stakeholder account- public operator in 1997, mail volumes fell by an ability; and

59 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

n To commercialize the public operator to suc- Commercializing the Public ceed in a competitive and expanded market. Operator

Regulatory Reform Performance Agreement

In 1993, the government initiated this process by The regulatory framework defined the rules of passing a series of new communications and the game and the responsibilities of each of the postal laws to establish a sound legal and regula- major players. However the government deter- tory framework for the sector. 12 These laws sepa- mined that it would be necessary to measure the rated TPTC into autonomous entities for postal, success of these policy decisions and to ensure Tanzania Posts Corporation (TPC), and telecom- that the public operators’ level of accountability munications, Tanzanian Telecommunications was commensurate with its newly granted man- Company Ltd. (TTCL), and provided TPC with agement autonomy. Therefore, a performance commercial flexibility including the right to in- contract was signed by TPC, PSRC, and TCC corporate subsidiaries and enter into commercial specifying five performance targets: partnerships.

n Quality of service, a negotiated percentage The new postal law defined TPC’s universal ser- of inter and intratown letters to be delivered vice obligation (all letters, packets, and parcels within a specified number of days; up to 10 kilograms) and associated privileges (a reserved area up to 500 grams) and established n Security, mail theft be kept below a defined the “rules of the game” for competitive portions level; of the postal market by establishing a coherent n Profitability, TPC must reach an established licensing scheme. Finally, a new regulatory level of profit before taxes; framework was established to clearly demarcate the functions of each postal stakeholder: n Growth, expressed as a percentage of in- crease in mail volume annually; and

n Ministry of Communications and Transport n Customer satisfaction, expressed as keep- sets overall policy for the postal sector ing customer complaints below a percent- age of mail volume. n Tanzanian Communications Commission (TCC) administers licensing and tariff set- Quantitative performance indicators were devel- ting for reserved services; oped for each area and measured by an indepen- n Presidential Parastatal Sector Reform dent third-party. Furthermore, financial bonuses Commission (PPSRC) approves TPC bor- for exceeding, and penalties for missing the tar- rowing, represents consumers, and deter- gets were specified for the board of directors and mines future restructuring or divestiture of TPC management. The first three-year perfor- public entities (such as TPC); and mance contract was signed in 1997 and has been renewed once. n TPC, under a license granted by the TCC, provides universal services at a level estab- lished in a performance agreement estab- lished with the government.

60 CASE STUDIES

Building TPC’s Capacity World Bank Participation

The government determined that to fulfill the re- The World Bank’s support for postal reform in quirements of the performance contract, compete, Tanzania was one of its first projects in the sec- and be financially sustainable, TPC needed suf- tor and began as part of a larger telecommunica- ficient commercial capacity. A strategic plan was tions project. This support was an important developed to establish corporate objectives to: factor in obtaining the technical expertise needed improve the quality of service, increase employee to develop effective market regulation and estab- productivity, support innovation of products and lish an organizationally and financially autono- services, and incorporate new technologies. mous TPC. It was valuable in resolving highly Operating costs were reduced by adjusting the technical issues such as the separation of posts existing network (mainly through franchising) and and telecommunications and the design of a com- by staff reductions (nearly 45 percent, mainly mercial accounting system for TPC. The tar- through attrition).13 The most important factor geted, if limited, investment in strengthening in commercializing TPC was its separation into management information systems also helped three distinct business units: mail, counters, and TPC to monitor and control its operations and express mail service (EMS). Each unit received finances.14 The Bank’s participation was effec- adequate operational and financial autonomy to tive in supplementing the government’s basic focus on its customers and core products, thereby strategy and vision for postal reform. The mo- decentralizing authority and increasing manage- mentum of reform has been maintained by postal ment control. Significant capacity building was stakeholders in Tanzania for many years follow- also undertaken in each unit: mail operations ing completion of the Bank’s support. were upgraded in the main sorting center in Dar es Salaam, counter operations were automated with the support of the East African Develop- Reform Results ment Bank, and EMS incorporated new trace and track systems. Measuring Progress

Reform Process Tanzanian reforms have focused on the public incumbent operator: trying to ensure it is finan- The government not only undertook a well se- cially viable and can meet its universal service quenced postal reform (regulatory reform, ac- obligations. Consequently, the development of countability, and commercialization) it also al- the supply-side of the postal market has consisted lowed time to resolve the more challenging is- mainly of a few entrants into profitable market sues in the process. A good example is the one segments (for example, international courier and year “transition period” to split posts and tele- some domestic interurban routes). This increased communications functions, to allow the legal the choice for particular categories of consumers separation of existing balance sheets, determine but has not resulted in more choice or quality of how to fund pension commitments, and how to service for most consumers in rural areas. De- allocate TPTC’s assets and liabilities between the mand served by the incumbent has failed to in- two entities. crease substantially over the period since re- form—it has risen and fallen from year-to-year

61 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

but remained at around the same level over the sive to operational improvements, grew by nearly period. TPC’s loss of market share to competi- 20 percent from 1998 to 2002, and overall letter- tors suggests that aggregate demand has in- volume by approximately 8 percent.15 Most creased, although no data on volumes is avail- postal administrations in the world, including able from competitors. Consequently, the in- those in industrialized nations, have experienced creased demand that arises from the reforms flat or declining volumes for letter class mail (such as from permitting new entry) does not during the same period. Productivity spiked in necessarily accrue to the incumbent. As a re- 1999 (32 percent increase in items per employee; sult, TPC is looking to expand its services be- 17 percent increase revenue/employee) due to yond its traditional letters market and into other reductions in staff and increased mail volumes; forms of mail (like advertising mail) and other however, productivity has remained fairly un- services (such as financial services). If this changed in ensuing years. succeeds it would be partly attributable to the increased commercial focus instilled in TPC as During and following the reform, the policy de- a result of the reforms. cisions make it clear that TPC must be finan- cially self-sustaining and deliver an acceptable The requirements of TPC’s license and perfor- level of universal service without subsidy. A ris- mance contract provide a good framework for ing cost per item handled (nearly $0.50 per item evaluating the results of postal reform starting in 2001) made these goals challenging. TPC has in 1998. succeeded by controlling costs (Chart 4)16 but at the price of reducing coverage and increasing Volumes and Financial tariffs (by nearly 43 percent in real terms).17 TPC Performance attempted to increase profit by aggressively mar- keting its new products; but revenues, like vol- Chart 3 shows growth of letter class volume for umes, were relatively flat from 1998 to 2002. 1998 to 2002, but it does not appear that reform has generated large increases in volumes. How- ever, domestic volumes, which are more respon-

Chart 13 - TPC Letter volumes Chart 4- TPC economic performance

30.0 12.00 10.00 25.0 8.00 20.0 Domestic SDRs 6.00 (millions) 4.00 15.0 Internationa Operating revenue 2.00 Operating expenses 10.0 Total 0.00 Net (before taxes) -2.00 5.0 1998 1999 2000 2001 2003 millions of items 0.0 Operating revenue 10.30 9.60 11.00 10.60 9.70 1998 1999 2000 2001 2002 Operating expenses 10.50 10.00 10.20 9.50 8.10 Net (before taxes) -0.20 -0.40 0.80 1.10 1.60

62 CASE STUDIES

Coverage (Outlets and Delivery) Table 1. Performance Providing universal postal services is both chal- measure targets lenging and costly in a country of 37 million people Performance measurement Targets for 2001

(70 percent of whom live in rural areas) dispersed Area Target over 947,000 sq. km., serviced by a poor trans- Mail intra-town J+0 (98%) portation infrastructure, and with a grossly inad- Mail inter-town Zone A J+1 (85%) equate addressing system. Tanzania averages Mail inter-town Zone B J+2 (88%) about 60,000 inhabitants per postal office, one of Mail inter-town --District J+5 (80%) the highest ratios in the developing world. To con- tain costs the total number of post offices (TPC n Mail. Tariffs were based on the speed de- and franchised) was reduced from 500 in 1993, to sired by the customer (economy or priority 422 in 2002. Almost all mail is delivered at post services) rather than on the content and size offices, through private post office boxes or over of the mail piece. TPC is also free to nego- the counter. However, the reduction in network tiate individual rates with large mailers and reflects a closer approximation of access with de- is developing an advertising mail business. mand, and there appears to be relatively uniform coverage throughout the country. n EMS. In addition to the normal express mail services, new products such as EMS fax Quality of Service and Customer service and money-fax were introduced. An Satisfaction agreement recently was signed with DHL for delivery of international items in desig- Gathering data on quality of service is difficult nated countries while TPC delivers domes- due to the dispersed nature of Tanzania’s postal tic items for DHL. network and the light volumes of mail carried. n Counters. As part of its revenue-generat- However, recent studies show that TPC is meet- ing strategy, TPC’s retail network sells other ing the quality standards of the performance con- communications products including station- 18 tract (Table 1). As with quality of service, the ary, packaging material, photocopying, and measurement systems used for monitoring cus- fax services, and a few sites offer Internet tomer satisfaction do not produce detailed infor- access. Perhaps TPC’s most successful new mation. They are based primarily on monitoring product area is that of financial services the number of complaints submitted to the op- such as a “giro-banking” that allows insti- erator and regulator. While recent studies indi- tutions to pay salaries, pensions, and divi- 19 cate this target is being met, growing competi- dends to its employees and shareholders tion from private operators show there is still dis- through the postal network. TPC also re- satisfaction with TPC’s efficiency. tains 30 percent of the shares in the Post Office Bank, which provides another source Innovation of revenue.

Each of the three corporate areas have made sig- nificant efforts to research, develop, and market new products in order to generate extra revenue.

63 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Overall Market Development ties and transparent processes for postal regulation and performance. These reforms In Tanzania an original goal of the reform was to were properly sequenced and timed and the increase competition and grow the postal mar- government ensured that sufficient resources ket. Private sector participation has slowly and were available to complete the reform steadily increased since reform was initiated. agenda. There are now two licensed international postal n TPC has commercialized its operations and competitors (DHL and TNT) and 14 other li- finances and has developed a solid market- censed competitors who primarily use their own ing strategy based on determining and meet- networks (e.g., bus operators) to transport mail. ing unmet demands in the postal market. Competition is particularly keen in express mail Quality of service, security, and product di- and parcels due to their profitability; so far, no versity all significantly improved. TPC has operator has applied for a license to deliver mail continued to be self-sustaining and has sig- in the reserved area (under 500g). Above 500g, nificantly lowered the cost to the govern- competitors enjoy 15 percent of the overall letter ment of providing universal services. A self- market and a significant portion of the express sufficient postal operator is rare in coun- mail market.20 Their higher prices, greater reli- tries at this economic level. ability, and same day service have created a qual- ity niche above TPC’s economy and priority ser- Areas for Improvement vices. At this time there is little threat from Internet services since less than 0.5 percent of the population are Internet users.21 TPC increased n While regulatory and institutional reforms private sector participation through franchising were implemented and the cost to the gov- and commercial partnerships and by interconnect- ernment of providing universal service was ing with private transportation companies to ar- lowered, the wider sector reforms (such as range for delivery of mail in remote areas. decreasing the cost of basic postal services and significant market expansion) have not In summary, while the reform has created a mod- been achieved. est growth in competition, private sector partici- n Although the performance contract has pro- pation, and volumes it has not decreased the cost vided a worthy yardstick for measuring of providing basic postal services. progress, to date penalties have not been as- sessed in areas where targets have been missed. It is unlikely that such penalties What Went Right, Areas for will be levied except in severe cases of Improvement underperformance. The incentive mecha- nism embedded in the performance contract What Went Right may not come into play if penalties are not levied. n Tanzania’s postal reform established a solid n Despite successful reform, postal tariffs in legislative and regulatory foundation for the Tanzania are high; the lowest postage rate sector with a clear division of responsibili- (economy service, 20 grams or less) is the

64 CASE STUDIES

same as the price of a loaf of bread, or 30 minutes Internet access. Recent studies es- timate that the tariff for basic letter services could represent a cost between 3 and 9 per- cent of typical monthly expenditures.22. While pegging TPC’s prices closely to cost has allowed it to maintain financial equilib- rium, such frequent rate hikes may drive the cost of postage beyond the means of the average mailer, and may even be depress- ing mail volumes. Further analysis of price elasticity may be necessary to better appre- ciate impact on demand.

Sustainability

Without significant market growth, Tanzania may find it difficult to sustain the benefits achieved by its postal reform. Competition is growing and the relatively high prices needed to maintain TPC’s financial viability may depress volume over time. Furthermore, the TPC’s low level of profitability (recently 2.5 to 5 percent) does not provide sufficient excess capital for investment in future development. The government is con- sidering four options to increase TPC’s access to outside investment: enacting legislative changes that would allow TPC to borrow funds indepen- dently of the Ministry of Finance; separating com- mercial (EMS) from social (basic letter mail) services with the former services entering into partnerships with the private sector; converting TPC from a public corporation into a limited li- ability company (as was done with TTCL) which would open TPC to partial privatization; or com- pletely privatizing TPC.23 These strategies fo- cus on private investment to further extend the benefits that have been achieved through Tanzania’s postal reform.

65 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

poorly defined universal service for basic mail, Trinidad and Tobago was not accountable for performance, had no Improved Postal Services Through marketing capacity, and ran its finances accord- Management Contract, but ing to the government budget cycle. Private sec- Uncertain Financial Sustainability tor participation did not exist at any level within the public operator.

Pre-reform Postal Situation Reform Impetus and Strategy Market and Regulatory Environment Reform Environment

Prior to reform in 1999, the public postal opera- Prior to 1999, several reform programs had been tor in Trinidad and Tobago was caught in a “vi- implemented in Trinidad and Tobago to boost the cious circle” of poor financial performance, low economy and strengthen the country’s financial investment, poor customer service, and decreas- system through a redefinition of the scope and ing mail volumes. The per capita mail volume size of the public sector and a wide-range of stood at 12.6 pieces—low for an upper-middle- privatizations. More recently, the government income developing country—and overall mail developed a “2020 Vision” based on raising in- volumes dropped by 20 percent between 1995 frastructure services to world-class standards by and 1999.24 Quality of service was poor with 2020. For the postal sector this means bringing mail frequently taking seven to 10 days to be de- postal financial and operational performance to livered, and universal service reached only 50 the levels of the most successful postal services percent of households. It was estimated that per- in the industrialized world. haps no more than half the population had a posi- tive response to Trinidad and Tobago Post Of- Postal Reform Strategy fice and Postal Savings Bank, the public opera- tor. In 1999 the government established a two-phased approach to modernize the postal industry with Public Operator Status and strong support from the wider postal stakeholder Performance community. The first phase would restore pub- lic confidence in the public operator, build postal Financial performance was dismal; the post had volumes and revenues, improve service, extend lost money for years and revenues typically cov- universal network coverage, and gradually reduce ered only two-thirds of costs. There was a great the levels of government support. Increased pri- deal of unregulated competition for regular mail vate sector participation in the public operator’s services, much based on “self-delivery” by util- management and operations was seen as the best ity companies. The existing postal law estab- method for achieving these goals. lished the Post Office and Savings Bank as agency divisions of the Ministry of Public Utilities and In the second phase, a revised legislative and regu- Environment and the Ministry of Finance respec- latory framework would be established to stimu- tively. The public operator was responsible for a late overall postal market development. During

66 CASE STUDIES

this phase, the commercialized public operator n Met standards for transit time of mail from would gradually be exposed to more competition, customer deposit to delivery; and strengthened through increased private sec- n Growth in revenue from postal services; and tor participation through a long-term arrangement such as a concession or partial privatization. n Met net income target specified in the DMA contract. Regulatory Reform Reform Process A delegated management arrangement (DMA) was identified as the vehicle for the first phase of The reform process began with the government’s the reform, namely to rehabilitate the public op- design for the broad strategies to rehabilitate the erator by introducing commercial discipline and public operator and establish the groundwork for innovation into its operations and management. future market liberalization and increased private In order to provide the legislative and regulatory sector participation. The next task was to en- framework needed to support a management con- gage stakeholders (including major mailers, la- tract, the Postal Act of 1999 was established to bor unions, consumer groups, and private postal provide more management autonomy and com- operators) in building consensus for reform mercial flexibility for the new public postal cor- through a series of information sessions and work- poration, Trinidad and Tobago Post (TT Post); a shops. There was a general consensus concern- reserved area was maintained for letters with the ing the significant need for reform and the gen- understanding that over time this would be sub- eral strategies for achieving this transformation. ject to gradual liberalization. The government’s “reform champions” did an excellent job of explaining the goals of the re- Commercialization of the Public form at Universal Postal Union meetings and Operator and Performance Targets other international fora. This process helped to build interest among potential bidders interested The DMA, a five-year management contract, was in the management contract. awarded to New Zealand Post International Lim- ited (now Transend Worldwide Limited) after a World Bank Participation competitive bidding process. Transend was obli- gated to manage TT Post in line with international Support from the World Bank was sought to help best practices that would be measured by annual conduct detailed postal market analysis, policy- quality of service and revenue targets; with pay- setting, and long-range strategic planning activi- ment of management fees tied to achieving tar- ties. During the detailed DMA design and inter- gets. Independent third-party organizations would national bidding process; the Bank’s extensive monitor, measure, and review the progress based expertise in these areas helped to ensure a com- on the following five performance indicators: petitive search for a competent and committed partner in TT Post’s transformation. As the DMA has progressed, the Bank has provided technical n Improved level of customer satisfaction advice in areas such as financial audits needed to among mailers; strengthen TT Post’s institutional structure. A n Expanded reach of universal delivery in loan package of approximately $11 million was Trinidad and Tobago;

67 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

secured to provide the investment required to cent reduction in staffing. The current per capita improve the public operator’s management struc- figure of nearly 30 pieces annually exceeds the ture, processing and delivery capacity, and retail GDP/GDI predicted figure for Trinidad and To- network. During the transition from DMA to bago and demonstrates the positive contribution long-term arrangement, there will be a greater the postal sector is making to economic growth. need for policy advice and assistance in develop- Revenue growth met all targets imposed by the ing long-range strategies and a supporting legis- DMA and (Chart 6) grew by almost 75 percent lative and regulatory framework for the sector. from 1998 to 2002.25 Despite this growth TT Post did not make an operating profit by Year 4 of the contract (as had been assumed) leading to Reform Results a continued need for government support. While there are institutional (inadequate capitalization, Measuring Progress incomplete vesting of property, and a lack of a collective bargaining agreement) and operational A key project objective was to open the sector to reasons (rapid expansion of network coverage and competition midway though the DMA which did quality) for these continued losses, it also indi- not happen. In respect to the reform of TTPost cates that there is a weakness in cost contain- the data provided by the DMA’s monitoring sys- ment in the DMA design and in the ongoing op- tem at the close of Year 4 provides a good van- eration of TT Post. tage point to determine progress: Coverage (Universal Delivery) Volumes and Financial Performance The DMA requires the management contractor to maintain a delivery network that reaches all Chart 5 shows the dramatic growth during between parts of the country. Chart 1 shows that from 1998 and 2002: total volume 157 percent; per approximately 50 percent in 1999, TT post now capita annual volume 145 percent; items handled reaches 93.6 of all addresses in the country on a per employee 175 percent; and revenue per em- daily basis. ployee 184 percent, all while achieving a 39 per-

Chart 5 - TT Post operational5 performance Chart 62 - TT Post financial performance

100

80 Volume (millions of 10,000,00010 items) 8,000,0008 60 Items per employee 6,000,0006 (thousands) SDRs 4,000,0004 Operating income 40 Percentage home (millions) 2,000,0002 Operating expenses delivery 00 Net income 20 Customer -2,000,000-2 Satisfaction -4,000,000-4 0 199819992000 20012002

1998 1999 2000 2001 2002 2003

68 CASE STUDIES

Quality of Service (Transit Time) Overall Market Development and Customer Satisfaction It is difficult to determine whether the TT Post’s The DMA set aggressive quality-of-service stan- increased mail volumes represent new mail, or dards for next-day mail delivery for mail posted whether the increase is due to business captured by an established cut-off time. Prior to the intro- from private operators—due to the public duction of the DMA it was estimated that less operator’s extremely efficient network and con- than 50 percent of mail was delivered within two tinuing monopoly. However, evidence suggests days, whilst the latest independently monitored that TT Post’s increased level of efficiency, ex- figures show that over 90 percent of mail was panded coverage, and successful marketing of delivered by the second day after posting. More new products has created a new interest in us- importantly, business and individual customer ing mail as an advertising and business com- satisfaction with the speed and quality of deliv- munications. ery by TT Post (as measured during Customer Satisfaction Index [CSI] surveys) is at an all- time high. (The independent CSI measures cus- What Went Right, tomer perception on postal service performance Areas for Improvement over a broad range of factors.) Despite two in- creases in rates TT Post’s CSI scores consistently What Went Right improved during the first four years of the con- tract. The current CSI level of nearly 85 percent n Enhancing postal network capacity and in- is a dramatic increase over the estimated 50 per- creasing efficiency through the introduction cent at the start of Year 1. of an independent management contract has Innovation led to significant increase in volumes and revenues; this suggests that other countries can achieve similar results by adopting a The most significant factor to growth was new similar approach where latent demand for business, which increased by nearly 50 percent efficient postal services exists. each year during Years 3 and 4. The successful development, marketing, and delivery of new n The measurement of five key performance business products demonstrate the improved com- indicators has led to a higher accountability mercial culture within TT Post and the ability to and the ability to measure progress. This in uncover and respond to emerging market de- turn has led to adjustment (for example in mands. New products included bill payment at total revenue targets) as well as a clear un- post offices, the country’s first domestic express derstanding of issues to be addressed (cost mail service, and bulk mailing offerings tailored containment), before the next project phase. to major mailers. Early in the project it was de- This would be impossible without quantita- cided to terminate postal banking services since tive performance indicators, objective mea- most of the accounts were dormant, and since surement systems, relevant performance tar- Trinidad and Tobago already enjoys a very dense gets, and structured accountability. For years retail banking network. to come the benefits of having a comprehen- sive addressing system and increased access to all population segments will pay dividends.

69 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Areas for Improvement the second phase of the reform project (increased private sector participation and competition), it will be necessary to address three key actions: n After five years under the DMA, TT Post is not financially self-sufficient and is a con- tinuing (though decreasing) drain on gov- n Financial viability by resolving outstanding ernment resources. Expanded coverage and institutional and operational issues that in- aggressive quality-of-service targets have hibit financial performance, and by devel- added to the cost of universal service provi- oping a cost containment program. sion and it may not be feasible to achieve n Establish a sector policy that emphasizes universal next-day delivery and financial the drive towards a state-of-the-art postal equilibrium throughout the network, particu- service, as well as the strategies to increase larly in remote areas. competition and private sector participation. n Because of TT Post’s continuing financial n Design of a legislative framework to sup- losses there will be a two-year “transition port and implement the sector policy. The period” between the DMA and the long-term Postal Act of 1999 represented a good first arrangement. This delay may pose some risk step towards reform by providing TT Post in terms of losing momentum for increasing with some basic autonomy and flexibility private sector participation in TT Post. needed to operate as a business. The DMA, n For the immediate future (in light of its cur- conversely, provided a contractual form of rent financial situation), the government is regulation through contract monitoring and keen to delay market liberalization. It is felt fulfillment. However both TT Post’s this decision should be reconsidered since lib- sustainability as well as the long-range sec- eralization will focus the incumbent on be- tor policy goals (such as a more competi- coming more efficient and increased compe- tive postal market) require a comprehensive tition will give greater choice to the consumer. and sector-wide approach to regulation.

Sustainability The DMA provided an efficient and productive vehicle for building the postal business in Trinidad Based on the first four years of the DMA, it is and Tobago. Now the challenge is to build on this safe to venture that TT Post will emerge from the success to ensure future sustainability and growth. current management contract with a strong in- frastructure and a thriving postal business. Sig- nificant investments have been made to improve Notes processing capabilities (including a new sorting center), delivery efficiency (a new delivery fleet), 1 Mainly current accounts “compte-chèque postal” and to refurbish TT Post’s retail outlets. New and savings accounts “caisse d’épargne nationale” business has been identified and captured, and and money orders. the image and reputation of the public operator has been strengthened. In order to sustain these 2 IAM was set-up as a “société anonyme” (joint stock gains, as well as to realize the primary goals of company) under private law.

70 CASE STUDIES

3 The change of status aims at transforming the EPIC control over some TPC functions such as the raising into a société anonyme. This would, among other of new capital. It will decide whether and how TPC things, remove the a priori budget control from the is privatized. Ministry of Finance. 13 Universal Postal Union and World Bank Group. 4 In the last few years several studies related to the 2002. The Postal Industry in an Internet Age Wash- universal service were conducted. These studies il- ington, DC: UP and World Bank. lustrate the government’s cautious approach to sec- 14The approximately $2.9 million technical assis- tor reform and to the introduction of competition. tance loan was also used to build TPC’s capacity 5 A larger adjustment credit focused on telecommu- through acquisition of computer hardware and soft- nications and information technologies. ware, postal equipment and supplies, vehicles, con- sultant services in postal operations and cost account- 6 Source: Universal Postal Union. ing, and a wide-range of management, marketing, 7 Source: BAM. and financial training.

8 Source: BAM. 15 During this same time period, GDP and GDP/ capita, the best indicators of postal volumes, were 9 BAM reached 1.13 postal counter per 10,000 inhab- basically flat in Tanzania. itants in urban areas, and 1.03 in rural areas, against respectively 1.00 and 0.92 set as initial objectives. 16 Source: Universal Postal Union and World Bank.

10 Source: ITU 2002 17 TPC pays taxes on its net profits and a royalty of 1 percent to the TCC based on its volumes. 11 The average for sub-Saharan Africa is 0.86. 18Frontier Economics Study of Tanzania and Uru- 12Tanzania Posts Corporation Act, 1993: created guay (unpublished). TPC as an autonomous government corporation with a managing board appointed by the Ministry of Com- 19 Not in the public domain. munications. 20 Private operator volumes have grown slowly since Tanzania Telecommunications Company Organiza- reform was initiated, along the same lines as TPC’s. tion Act, 1993: established TTCL as a limited li- volumes. ability company and provided general strategy for dividing common assets and liabilities between the 21 World Bank Development Indicators, 2003. Lat- two new organizations. est available data on usage levels is from 2000. Tanzania Posts and Telecommunications (Vesting 22 Frontier Economics. and Liabilities) Act, 1993, provided detailed guide- lines on division of assets and liabilities between the 23 Interview with Director General Minde in Union organizations. Postale. Tanzania Communications Act, 1993: established 24Analysis of GDP/GDI compared with per capita the TCC to regulate both TPC and TTCL. TTC over- volume in countries with levels of economic devel- sees licensing and tariff setting for reserved services/ opment similar to Trinidad and Tobago’s would in- Public Corporations (Amendment) Act, 1993: cre- dicate that this number should have been closer to ated the PSRC with responsibility to restructure and 26 items. divest government organizations. The PSRC has 25 Source : Universal Postal Union.

71 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

Chapter 7 Conclusion

ostal networks of the 21st century are rel- need to burden the taxpayer with the provision of ics of a bygone era when mail was the only postal services. Governments are beginning to Pform of distance communication. Postal question whether such investment would be bet- networks were established to ensure that the whole ter spent on increasing access to other public ser- population had access to this once unique form vices which may have a more significant impact of communication. Those networks are still main- on social interaction, poverty reduction, and eco- tained to ensure the continued provision of uni- nomic development than the continued investment versal service, albeit in a state of poor repair with in the postal service. outdated equipment and poorly trained staff. This is particularly the case in developing countries That is not to say that mail does not have a part where networks were often established to fuel the to play in the social and economic development economic activity of a once colonial power. Con- of a country, it certainly does. But the role of the versely nowadays these networks depend for their postal sector needs to be viewed on present need survival on heavy subsidies acting as a drain on and not historic precedent. The definition of uni- government resources with their extensive net- versal service therefore needs to be debated within works and low volumes. each country and its provision defined based on the balance of social needs and the cost of pro- Today telecommunications and electronic com- viding the service. Industrial countries are often munications provide easier and quicker means of used as sources from which to adopt best prac- keeping in touch. Indeed, such new technologies tice but in the case of universal postal service it are serving as substitutes for postal communica- is unlikely to be a good source. Next-day and tion and in turn diminishing the importance of everyday delivery is neither required, attainable, the social function of the postal service. Such nor cost effective. Developing countries should substitution brings into question the continuing be wary of the tendencies that exist to promote

72 CONCLUSION

and apply such highly defined universal service Governments must look at the sector as a whole concepts. In many developing countries, postal and provide those who drive economic develop- services offer low quality, insecure service, pro- ment with the tools that will help them do just vide only the most rudimentary products, and tend that. Competition should be introduced in the to have low-quality management often appointed market to provide the business community with for political reasons. At the same time they are quick, reliable, and secure services that are often offered the protection of a reserved area so that not provided by the incumbent. Such competi- they can theoretically maintain a universal ser- tion will force the incumbent operator to improve vice that they practically cannot provide. their service, become more efficient, and focus on the customer which will benefit the commu- The role of posts in the developing world must nity as a whole. evolve in a way that assists in the economic de- velopment of the country. But economic devel- Post offices can also act as a platform for the opment does not come from having a postal net- provision of other services and ensure that they work that links every citizen in the country to a use their infrastructure to its full potential. They service that they neither need nor use. It comes can diversify and offer services on behalf of gov- from identifying the needs of the market and es- ernment and other businesses. If they have too tablishing products and services that fulfill those much space, they should offer it for rent to busi- needs. That does not mean next-day-delivery, nor nesses that can attract customers through the door. does it mean daily collection and delivery to ru- Post office outlets that receive no customers ral areas that send and receive little mail, nor does should be closed or replaced by agents that oper- it mean establishing dedicated postal outlets in ate on a transaction fee basis. Distribution net- villages that conduct fewer than 10 transactions works do not solely need to carry mail; and if per day. But such situations currently exist and spare capacity exists, the postal operator should governments must take on the task of reforming look at what else they can distribute on behalf of their postal services so that they can reduce the other people or use other networks for the car- burden of supporting them financially. riage of mail.

Best practice often involves access provided not Such diversification into other businesses requires by dedicated post offices but by private agents capacity that rarely exists within a largely civil performing postal services from already estab- service or politically managed organization. A lished businesses for a fraction of the cost of dedi- fundamental step in transforming the fortunes of cated facilities. If post offices throughout the a postal service is the introduction of business world are to survive and serve their communities practices and commercially-minded management they must undergo radical change. The time for with experience in changing postal services from “bandage” solutions has gone and the time for loss-making, internally focused government de- major surgery has arrived. Governments must partments into profit making, customer focused review the needs of their postal market and move businesses. Governments should follow examples away from the romantic notion of universal-for- of reform around the world that have success- all to a notion of universal access based on need fully transformed postal operators. They should and cost. learn the lessons, good and bad, of those examples and put in place their own process of reform that

73 THE POSTAL SECTOR IN DEVELOPING AND TRANSITION COUNTRIES

will lead to a streamlined postal operator with Postal reform should not be seen as an enemy of growing volumes, increased quality and customer the postal service, it should rather be seen as its satisfaction and reduced subsidies from govern- liberator. Postal reform provides the users of the ment. postal sector with the freedom, choice, and qual- ity they require to sustain their economic devel- Many people will maintain that the post office pro- opment and in turn, contribute to the social needs vides a vital social service and that by default sub- of each country in a timely and cost effective sidies need to exist in order to meet this key ser- manner. vice. This is often used as a reason for maintain- ing the status quo and avoiding postal reform. In practice, however, customers in many countries are being failed by their postal service, and de- spite the extensive networks there is no real ser- vice. Trinidad and Tobago has increased access from 50 to over 90 percent and customer satisfac- tion has also increased by a similar margin since undergoing a postal reform process. The post of- fice has not yet reached the reform goal of finan- cial viability but surely it is better for the govern- ment to financially support a postal service that is increasing access, raising volumes, expanding ser- vices, and increasing quality and customer satis- faction than support one that meets none of those criteria.

The Argentina model of reform has come under criticism after the concession was revoked in No- vember 2003 but the seven years of private man- agement has resulted in significant investment in automation, leading to new products and services, a new brand image and a customer focus that has transformed the old state run post office into an efficient customer focused organization.

Finally Tanzania is another example of what postal reform can achieve in developing coun- tries. Once a heavily subsidized and inefficient postal service, Tanzania Posts Corporation is now hailed as an example throughout the region on how postal services can meet social objectives and the needs of the economic community with- out burdening the taxpayer.

74 BIBLIOGRAPHY

Bibliography

Chapter 2: Reinventing the Post Chapter 3: What Drives Postal Office Performance? A Cross-Country Analysis CGAP (Consultive Group to Reach the Poorest). 2004. Occasional Paper, July 2004. 8:5. Ahmed, H. 1981. India Post Through the Ages. Correos Chile. 2004. . Postal History Society of India. Processed. Guislain, P. 1997. The Privatisation Challenge - A Forestier, E., J. Grace, and C. Kenny. 2002. Strategic, Legal, and Institutional Analysis of Inter- “Can Information and Telecommunications Tech- national Experience. Washington, DC: World Bank. nologies be Pro-Poor?” Telecommunications Policy. PWC (PricewaterhouseCoopers). 2004. “Postal Telecentres: Rural Development Through Internet Frontier Economics. 2002. The Impact of Lib- Access is South African Development Community.” eralization on Efficiency: A Survey. London: Report produced for the World Bank. Processed. Frontier Economics. Processed. Shirley, M., and J. Nellis. 1991. Public Enterprise Kirkman, G.., P. Cornelius, J. Sachs, and K. Reform - The Lessons of Experience. Washington, Schwab. 2002. The Global Information Tech- DC: World Bank. nology Report 2001-2002. New York: Oxford University Press. Universal Postal Union. 2004. . Nankervis, J., I. Carslake, and F. Rodriguez. World Bank. 1995. Bureaucrats in Business - The 1999. “How Important Have Price and Quality Economics and Politics of Government Ownership. of Service Been to Mail Volume Growth in Crew” Washington, DC: World Bank. in M. Crew and P. Kleindorfer (eds) Emerging Walsh, T. 2001. Delivering Economic Develop- Competition in Postal and Delivery Services. ment. London: Consignia. Boston: Kluwer Academic Publishers.

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Ranganathan, K. 1998. Redirecting Mail: Ogilvie, A. 1893. “The Rise of the English Post Postal Sector Reform, Washington DC: The Office.” The Economic Journal. 3 (11). World Bank and UPU. PWC (PricewaterhouseCoopers). 2004. “Postal Walsh, T. 2001. Delivering Economic Develop- Telecentres: Rural Development Through ment. London: Consignia. Internet Access is South African Development Community.” Report produced for the World Walsh, T. 2002. “Postal Infrastructure and Eco- Bank. Processed. nomic Development” in M. Crew and P. Kleindorfer (eds) Postal Delivery Services: UPU (Universal Postal Union). 2001. Letter Pricing, Productivity, Regulation and Strategy. Post Manual. Berne: UPU. Boston: Kluwer Academic Publishers. ———. 2002. Postal Statistics. Berne: UPU. World Bank. 1995. Bureaucrats in Business: The UPU and WB. 2001. “The Postal Industry in an Economics and Politics of Government Owner- Internet Age: Case Studies in Postal Reform.” ship. Washington, DC: World Bank. Washington, DC: UPU and World Bank. Walsh, T. 2001. “Delivering Economic Devel- Chapter 4: Questioning the opment: Postal Infrastructures and Sectoral Re- Monopoly-Supported Postal form in Developing Countries.” London: USO in Developing Countries Consignia. World Bank. 2002. “World Development Indi- British Postal Consultancy Service. 2002. “Cost- cators.” Washington, DC: World Bank. ing and Financing of Universal Service Obliga- tions: Universal Service Costs and Estimates Report.” PHARE Project 9728-02-01. Chapter 5: Postal Policy and Campbell, J. 2004. “History of Universal Ser- Regulatory Reform in vice in the United States”, presented at the 12th Developing Countries Conference on Postal and Delivery Economics, June 2-5, 2004, Cork, Ireland. Alvero, A. and A. Levy. 2004. “The WTO Doha Development Agenda: Defining the Scope of Cohen, R. et. al. 2003a. “A Comparison of the Postal Service Liberalization” in Michael A. Burden of Universal Service in Italy and the Crew and Paul Kleindorfer (ed) Competitive United States.” US Postal Rate Commission. Transformation of the Postal and Delivery Sec- Processed. tor. Boston: Kluwer Academic Publishers. Cohen R. et al. 2003b. “Towards a General Guermazi, B. 2000. “Exploring the WTO Refer- Postal Service Cost Function.” US Postal Rate ence Paper on Regulatory Principles.” Center of Commission. Processed. Studies for Regulated Industries, McGill Univer- Kenny, Charles. 2002. “Information and Com- sity. . Costs and Benefits.” Development Policy Re- view. 20(2).

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Chapter 6: Case Studies

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Author Biographies

Boutheina Guermazi is a regulatory specialist Pierre Guislain is the manager of the World Bank in the Global Information and Communication Group’s ICT Policy Division. Pierre, a Belgian Technologies department at the World Bank, in- national, joined the World Bank in 1983 and volved in telecommunications policy and regula- worked successively in the West Africa Project tory reform in a number Africa. Before joining Department, the Legal Department, the Asia the Bank in April 2004, Boutheina was Assistant Technical Department, and the Private Sector Professor at the Faculté des Sciences Juridiques Advisory Services (formerly PSD) Department, Politiques et Sociales of Tunis and a telecommu- before joining GICT, a joint Bank-IFC depart- nications advisor to the Sector Reform Unit at ment. From 1997 to July 2001, he managed a the International Telecommunications Union. She joint program between the World Bank and the also worked as strategy analyst for the Strategic European Commission on Private Participation Unit at ITU and a telecom regulatory consultant in Mediterranean Infrastructure. Pierre is the for the UNDP. Boutheina holds a Doctor De- author of several publications on privatization gree in telecommunications law and policy from and infrastructure sector reform. Over the last the Faculty of Law at McGill University (2003), 15 years, he has advised many governments on an LLM degree in international law from Indi- telecommunications and postal reform, with em- ana University and a Bachelor degree in public phasis on issues of market structure, competi- law from the university of Tunis. She held the tion, regulation and privatization. Pierre holds Fulbright scholarship (95-97) and was a research an MPA in Economics and Public Policy from scholar at the Social Science Research Council Princeton University and a graduate law degree (USA) and the Center of studies for regulated from the University of Louvain. Industries (Canada).

78 AUTHOR BIOGRAPHIES

Charles Kenny is a senior infrastructure econo- Isabelle Segni is a French national who joined mist in the GICT Department of the World Bank the Bank in 2001 on a secondment program from Group. He works on a number of projects re- the Ministry of Economy, Finance and Industry lated to information infrastructure, including co- (MEFI). She covers regulatory issues mainly re- ordination of the bank’s information infrastruc- lated to postal projects and focuses on the mod- ture activities in Afghanistan and Kenya. Pre- ernization of the postal industry. She spent 5 viously, Mr. Kenny was an author on the 1999/ years with the MEFI in the department charged 2000 World Development Report. Mr. Kenny with postal and telecommunication regulation and has MAs from Johns Hopkins School of Ad- was then sent to Washington for a 2-year assign- vanced International Studies and London ment with the French Treasury office at the French University’s School of Oriental and African Embassy. She holds a B.A. in political sciences Studies and a BA from Cambridge University. and is graduated from the École Nationale He has published on issues including ICT in de- Supérieure des Postes et Télécommunications. velopment, economic growth, and the link be- tween growth and happiness.

Graeme Lee is a senior postal policy specialist in the World Bank. His current portfolio of work includes advising on World Bank postal projects in Afghanistan, Malawi, Nicaragua and Trinidad and Tobago. Prior to joining the bank in January 2004 Graeme was based in Buenos Aires as the strategic advisor to Correo Argentino, advising on issues as diverse as the UPU quality of ser- vice fund to costing of universal service. His 18 month assignment in Argentina came during a 14 year career working for Royal Mail where he worked as a consultant on international assign- ments in central and eastern Europe, Africa and the Caribbean in the fields of key account man- agement, transport planning, costing systems and postal reform. Graeme has a BSc (Hons) degree in Transport and Distribution from the Univer- sity of Huddersfield.

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