DTIC policy places transporters at risk

The Department of Trade, Industry, and Competition is pursuing policies that can have dire consequences for transport operators, warns NICK PORÉE.

The Department of Trade, Industry, and Competition (DTIC) – which should be renamed the Department of Trade, Industry, and Non-Competition – has recently published discussion papers on trade policy, localisation, and greening the economy. These papers have many serious implications for the road transport industry.

The issues are real and relevant, but the approach suggested is a continuation of the centralised economic policy management, which has done so much damage to South Africa. The mindset is displayed in the opening statement: “To find commercially sustainable ways to create new jobs in the private sector, tocomplement what can be done through public employment opportunities.” This underscores the total misunderstanding of the role of government in a competitive economy.

In the field of localisation, much of the economic policy is directed to government control and mismanagement of industries, which compete with the private sector and only survive via redirection of taxes and borrowings to support the heavily unionised state-owned companies (SOCs). The Treasury Report to the Appropriation Committee on 14 February 2024 revealed a loss by Eskom of R7.5 billion and bailouts of R254 billion; Transnet – with R14 billion of debt due by year-end – was given a R47 billion debt guarantee.

The strategic fiddling by government to promote SOCs includes a deal with Gazprom (Russia) to resurrect Mosgas; nuclear power stations; and Turkish power ships. The list of “localisation” expenditures includes Denel (R3.3 billion), SAA (loss of R761 million), the Post Office, and municipalities. The Land Bank, which is designed to support uncompetitive agricultural developments, lost R97 million instead of making a budgeted profit of R99.4 million and was recapitalised by the State.

The R47 billion recapitalisation of Transnet totally eliminates the concept of commercial transport competition. It supports the continued inefficiencies instead of chopping up the SOC into commercial entities and privatising the recovery – as per the much-vaunted open access announced by the President. The current deliberations of the Department of Transport on the issue of road to rail are likely to be used to support the future of Transnet regardless of commercial impracticality.

The road freight industry has expanded to the challenge of railway failure despite inadequate facilities at ports and borders. The industry faces the impacts of trade policies supporting “localisation” and responding to the international call for “greening”. These include the administered pricing of fuels, labour, and excise taxes on vehicles and components, aggravated by municipal utility charges. The danger of “localisation” is the resulting disconnect from international supply chains and reduction of support from OEMs due to increasing costs and differentiation between local and international specifications. These factors are already evident in the industrial machinery industry, exacerbated by the levels of reduced business caused by South Africa’s depressed economy. All these have impacts on the pricing of road transport, and “greening” has also precipitated the closure of local refineries and dependence on imported fuel.

On 18 May 2021, the DTIC published a Green Paper on the advancement of new energy vehicles in South Africa. The aim of the Green Paper was to establish a clear policy foundation to coordinate a long-term strategy to position South Africa in relation to advanced vehicle and vehicle component manufacturing. According to Trade & Industrial Policy Strategies (TIPS), the cost of introducing the New Energy Vehicle (NEV) grant (to support the Motor Industries Development Programme) will be very substantial if it is successfully taken up by consumers.

“The modelled cost will be reasonable over the initial period, at R7.6 billion for the four years from 2022 to 2025 (measured in 2021 constant rand values). However, these costs will then escalate significantly as Plug-in Hybrid Electric Vehicle (PHEV) and Battery Electric Vehicle (BEV) consumption increases and the growth in Hybrid Electric Vehicle (non-plug in, self-generating) sales abates. The total cost will reach R31.9 billion by the end of 2030, and R94.5 billion by 2035,” TIPS states.

Current Treasury spending within the automotive investment scheme is R728.8 million allocated for support to NEV initiatives. Whether these costs to South Africa are justified by the resulting environmental change is debatable. It is notable that the investments in the Environmental, Social, and Governance (ESG) funds are slowing as countries absorb the cost implications of over-ambitious climate policy interventions.

The international “greening” drive to eliminate fossil-fuelled vehicles is impracticable in a country where the average truck age is 12 years and there is a significant number of trucks more than 40 years old and still working (and, incidentally, with Stage 7 rolling electricity blackouts). In addition to subsidies, the distances between potential fuelling points, the cost of the installations, and the capital costs of new dual-fuel or electrical vehicles are all barriers to short-term change. Long-haul transport combinations require a minimum of 400kW of power and capacity to travel 600 to 1,000km between refuels. With 6,000 to 9,000 vehicles per day on the major corridors, there will be a need for extensive new fuelling facilities (for electricity, hydrogen, and gas?) without disruption of existing diesel supply points. Road freight (and passenger transport) in rural areas will be problematic without the convenience of liquid fuel transportability and storage.

The various potential government interventions in the future of road freight transport need to be carefully assessed and monitored by the industry. This process would be handled better if there were more effective freight transport industry associations with sufficient resources and national coverage to achieve effective, independent advocacy and engagement in the national level economic debates. The currently unregulated, disaggregated, and dispersed road freight industry is facing spin-offs from the national logistics crisis, which require professional leadership and industry support.