Transnet is the economy’s binding constraint

Despite improved electricity stability post-elections in 2024, CHRIS HATTINGH says South Africa’s economic growth remains constrained by inefficient Transnet-run ports and rail infrastructure needing urgent reform.

Given the marked improvement in reliable electricity supply before, during, and now after the 2024 elections (221 days without loadshedding as of 3 November) the country’s ongoing logistics constraints – in the form of inefficient ports and railway networks run by Transnet – stand as the binding constraint on higher economic activity levels and GDP growth. 

This is not to discount the fact that the newest Transnet board has stabilised matters and led some improvements, especially regarding the volume of tonnage being moved by rail. But the court delays in bringing in private sector involvement at Durban Port Pier 2 should never have happened, while the first terms published to industry regarding concessions to private sector “ownership” of rail corridors were prohibitive and are being revised. In the context of a Government of National Unity and the ANC power base at under 50% for the first time after a national election – alongside new debates, ideas, and ways of thinking entering the national policy- and legislation-making spaces – there are many green shoots. To bring these to fruition will require difficult political decisions, where the country’s long-term growth prospects should trump short-term political expediency.

In terms of Transnet’s operations, matters have stabilised since 2022 and 2023. However, it is not yet evident that the work needed in infrastructure investment itself has been fully embraced. Moving more tonnage will not only assist and capacitate companies that want to use the rail corridors, reducing their costs, but would also boost Transnet’s coffers and help it to deal with its various debt commitments. At present, Transnet needs to pay around R1 billion interest on its debt; to recapitalise its infrastructure requires around R150 billion. These are not amounts to be lightly dismissed. While there was no indication of further government assistance for Transnet in the 2024 Medium-Term Budget Policy Statement delivered by Finance Minister Enoch Godongwana, the 2025 main budget will provide details as to whether or not the National Treasury assesses Transnet to be getting its house in order and implementing the necessary changes and reforms. The last assistance that Transnet received from Treasury was in the form of a R47 billion “credit guarantee”.

In his 28 October newsletter President Cyril Ramaphosa wrote: “The substantial work required to develop the [National Rail] Masterplan is expected to be completed by the end of next year.” While clear communications and expectation setting from government is to be appreciated, over the next few years it could well be confirmed that South Africa has delayed too long in turning around its ailing ports and railways. This would have the major consequence of future large investment and trade decisions shifting to neighbouring countries such as Namibia and Mozambique. The Lobito Corridor, which runs through Angola, Zambia, and the DRC, is another confounding factor at play.

In a Business Times interview published on 27 October, Professor Jan Havenga of Stellenbosch University estimated Transnet’s struggles to cost the economy R1 billion/day in lost GDP, and the Treasury around R50 million/day in lost tax revenue. As one of Africa’s most developed economies, SA can benefit substantially by reinvigorating low-hanging fruit such as reliable ports and rail. This isn’t about finding radical new solutions or ideas, but about doing the boring but necessary day-to-day work. 

In the 2024 Medium-Term Budget Policy Statement, the Treasury lowered its GDP growth forecast for this year and over the medium term. Whereas in 2024 GDP was forecast to grow at 1.3%, the updated forecast is now 1.1%, while in the medium-term growth is forecast to average 1.8%.

If real and speedy improvements at Transnet remain absent and the country does not allow private sector investments into rail and port operations, South Africa’s growth prospects will at best continue to stutter. Sadly, growth rates under 4% will not make a material dent in the country’s consistently high unemployment rate and entrenched inequalities.