Strategic chaos

South Africa’s transport and logistics industry is facing a challenging period of ideologically and politically induced “frictions” and obstacles to efficiency and the achievement of competitive global standards. We urgently need to decide what future we want, and how to get there, writes Nick PORÉE.

The continual dilution of competence in the management of state-owned enterprises (SOEs) has now caused them to fail the country, to the detriment of all. Unemployment is the worst in the world and will increase further as industry and agriculture are strangled by the efforts of the government to extract sufficient revenue to reward its employees and supporters.

The SOEs are now also suffering from the application of enforced BEE, which has been used to support cadre deployment. The ideology fails to recognise that commercial activities require skills and capital to survive. When skills deficiency is coupled with capital deprivation to fund the demands of the workers, the results are evident, and the end is predictable. It is unfortunate that accountants, who are inevitably historians, do not always see the connection between yesterday’s management decisions and the numbers on paper, and that manipulating the numbers does not change the realities.

In the field of transport, we now have railways and ports reduced to inefficiency by myopic policy and management indecisions. Deliberate reduction of skilled technical and managerial employees has been accompanied by increasing wages, executive malfeasance, and deferred maintenance and upgrading of the means of production. Strategic planning has been focused on spurious objectives unsupported by commercial logic or interrogation of cost-effectiveness.

We build four billion-rand bridges in the Eastern Cape but do nothing about the 20-year chaos in the port of Durban. The plundering of contracts has now landed the SOEs with massive debts, which will have to be recovered from taxpayers. We now see the SOEs attempting to attract gullible investors to put money into their derelict systems, without letting go of the nationalisation agenda. Union pressures are focused on governmental control of the reduced market for labour when, in fact, the nationalisation agenda is limiting the expansion of industry and employment. The railways and ports must grow to serve the country, not be throttled even further by the limitations of SOC management and government planning.

Strategic planning by government follows the archaic Marxist logic of “worker revolution” and achieving “equality” by the suppression of capitalism. When the communist revolution happened in Russia in 1917, Vladimir Lenin, the first leader of the new Soviet Union, concentrated all power in the Communist Party.

After Lenin, Joseph Stalin used violence and starvation to expropriate private ownership of agricultural land and industry, causing the deaths of millions of peasant workers. The Communist Party became a privileged ruling class, relying on force to stay in control for the next 100 years. The problem with the system is that the Party absorbs the wealth, and the peasants get peanuts.

In South Africa, the peanuts are called “social grants” – paid to 18 million people without any opportunity to earn a living, and unemployed due to reduced capitalist economic activity. The grants, unfortunately, merely increase dependence on government and reduce the private productive land use initiatives that are evident in neighbouring countries. The “social revolution” provides cover for those profiting from government, social disturbances, and criminal activity.

In the road freight transport industry, the current situation is that the owner of an interlink vehicle operating between Durban and Johannesburg must invest about R2.2 million for equipment and the same amount per year in operating costs to make a profit of R30 000/month.

To do this, he must pay his driver R16 000/month. For sustainability, he must take all risks, and pay for accidents and major repairs, then save from his profits to be able to replace his vehicle. The return on capital of about 10 to 15% per annum is not exciting with a bank overdraft rate of 12% and inflation of 7%.

With all the headwinds, there is an ongoing exodus of established capital in road freight, masked by a take-up of new entrants with bank funding and road haulage contracts due to railway failure. Many of the influx of new participants to the industry are unfortunately not aware of the danger of assuming that there will be sufficient business for sustainability. This – and reducing road safety – are the effects of what the Minister coyly refers to as “democratisation” in the White Paper on National Transport Policy.

Further negative features of the current situation are high levels of administered pricing, as government attempts to extract sufficient revenue to fund the billions of rands of SOE debts and the growing population living on social grants.

Taxes on imports, fuel, vehicle components, and road usage are aggravating the impacts of the failed port and railway situation. Massive losses by mining and agriculture are depressing investment decisions and reducing production levels.

In cross-border trade, about 23% of transport costs are due to delays and obstructions by authorities; 24% are taxes, fees, and levies by government; and the balance of 53% is the actual cost of the transport operation. In all areas, the cost of vehicle operations is aggravated by deteriorating roads, congestion, and accidents. With vehicle operating costs, long-haul operations require revenue of R30 to R34/km (R20 000/load from Durban to Johannesburg) to be fully sustainable.

Some very serious, focused, independent, and professional discussions of the future of freight logistics in South Africa (and the region) are needed. Independent research is required to produce clear evidence of the need for a radical transformation of the economic model and institutional framework. This is essential if South Africa is to avoid further damage and loss of global competitiveness.

The logistics sector is not able to support significant future economic growth, as visualised in the African Continental Free Trade Area (AfCFTA). Current border delays are costing the country R4.8 billion, port delays R500 million, and estimated increased road transport operating costs further billions each year. To this must be added the many billions of rands for road, rail, and port rehabilitation and upgrades for sustainable efficiency. There is no alternative to fixing the mess if there is to be a future for South Africa.

The government does not have the skills, commercial industrial knowledge, or funds to do the work, so it is time to reverse the socialist revolution and get back to commercial realities before we see further poverty and starvation. There is no point in following the Marxist model to oblivion.

As the Washington Post noted in November 2017 in its article, Lessons from a century of communism: “There are disturbing similarities between communism and various newly popular extreme right-wing nationalist movements. Both combine authoritarian tendencies with disdain for liberal values and a desire to extend government control over large parts of the economy. The better we learn the painful lessons of the history of communism, the more likely that we can avoid any repetition of its horrors.”