National shipping company won’t fix basic trade flaws

Is a national shipping company good or bad news for the South African economy and trade in general? CHRIS HATTINGH has his doubts about whether it can be a positive development…

It is highly unlikely that a national shipping company (which would be run by government) will solve the many problems that plague the South African trade space. While such a company could be established to attempt to compete with private sector players, this is the wrong area on which to devote time, already limited resources, and expertise. If government truly wants to turn around the country’s ports and rail networks and set up the country in a more future-proof manner, it needs to focus on reforms that will remove regulatory barriers inhibiting private sector investment and skills development in these spaces.

In late 2022 the Department of Transport released the first draft of the South African Shipping Company Bill, 2022. Establishing the South African Shipping Company would be done in the context of setting up a possible national shipping carrier as a “strategic pillar in the revival of the maritime transport industry”. In terms of authority and reporting lines, the entity would fall under the authority of a minister, as chosen by the president. The minister would, in turn, appoint a board that designates a CEO. Concentrating this much power in a single figure (regardless of which politician happens to be in charge of national government at any given time) opens up many avenues for – and increases the risk of – corruption, waste, and perverted incentives to take hold. These problems and more have plagued the vast majority of the other state-owned entities (SOEs) for years, and contributed to their steady decline. There is little reason to believe that a national shipping company would manage to buck these trends.

From a SOE perspective, national government has a decidedly sub-par track record. Transnet, South African Airways, the Land Bank, Post Office, and Eskom – to highlight only the clearest examples – can only continue to ‘function’ on the back of repeated bailout after bailout. The billions given to entities that have not been turned around in terms of efficiency and service delivery could have been allocated to protected funds for the development of emerging businesses, as just one example. The same waste is likely to occur should government attempt to establish and run a national shipping company.

Entities such as SOEs that enjoy the protection of regulations, legislation against private-sector competition, and bailout after bailout are not incentivised to improve their offering to consumers. They are additionally protected from any mistakes they might commit (as is inevitable when one tries to run a business). But whereas players in the private sector are subject to market forces, supply and demand, and responsibility for their failings, SOEs can rely on protections and safety from the state (and, by extension, citizens and taxpayers). Add into this mix the fact that the South African developmental state is, unfortunately, short on skilled bureaucrats, the forces in play simply do not point to efficiency, fiscally sound business practices, or service delivery.

According to Crisis24, a maritime security consultancy, there were at least 38 global instances of protests or strikes affecting port operations in 2022 – more than four times as many as had occurred in 2021. The consultancy expects that this situation could persist through 2023, exacerbated by tighter economic conditions. South Africa’s struggles with labour disputes and industrial action are well-known. Should a new state entity be established – in this case, in the form of a national shipping company – what changes would be implemented to ensure that public sector wage disputes do not disrupt maritime trade and operations on a countrywide level? These kinds of issues would need to be addressed in the concept phase – both in terms of systems and practical operations – before real money is spent on the endeavour. Should such an entity run into financial difficulties (either through its own operational and management mistakes, or because customers simply choose to use alternatives), who would be on the line to help fund it and keep everything afloat?

If South Africa and the wider sub-Saharan African region are to benefit from the implementation of the African Continental Free Trade Area (AfCFTA), the country’s ports, railways, and border posts and associated operations must be modernised, digitised, and improved as much as possible. Without such difficult but absolutely necessary work, schemes and plans such as a national company will most probably only result in wastage, inefficient operations, and yet more burdens on the government fiscus and taxpayer. The basics of sound trade infrastructure must first be achieved, before even attempting to create vast new SOEs.