The Transnet Imperative

Of all the vertically- and horizontally-integrated freight and ports companies that have existed in the world, Transnet is the last remaining of its kind. While there have been talks and nominal moves towards breaking up at least parts of Transnet’s various operations and introducing private sector investment and competition, these have not yet been made a reality. Chris Hattingh unpacks the situation.

The plan to bring in a private player at Durban Port Terminal Pier 2 remains on hold; meanwhile the terms of investment into Transnet railway corridors – especially the proposed rates – are so onerous as to effectively mean very few, if any, private players will be willing to take on those costs. This is in addition to the fact that Transnet would remain the custodian of infrastructure and new investments into said infrastructure.

South Africa talks a big game on the potential of the Africa Continental Free Trade Area (AfCFTA). Such rhetoric remains mere fluff, while the country’s own trade infrastructure and trade policy hobble and prohibit increased flows of materials, goods, components, and investment. Should US president Donald Trump’s new administration push for and succeed in implementing higher tariffs on imports, with significant ripple effects and possible retaliation by other global powers such as China and the European Union, South Africa’s underperforming trade infrastructures – held back by Transnet – will mean the country will inevitably fail to take advantage of changing global trade- and investment-flows.

Through 2023 and 2024 Transnet’s rail performance has improved – of this there can be no doubt. However, Transnet’s current target for moving volumes on rail is 170 million tonnes; it is unlikely that this target will be achieved.

The fundamental problem for Transnet remains this: spending more on consumption (salaries) and debt, and not nearly enough on maintenance of current – and building of new – infrastructure. Stellenbosch University’s Professor Jan Havenga estimates that Transnet requires around R20 billion per year, over 10 years, to fix “the network, the infrastructure”.

Radical moves

One hopes that 2025 will be the year in which radical moves on the operations and policy fronts shake up South Africa’s logistics landscape. There will continually be vested interests from political and business origins that push against any reforms that would see them losing monopoly control (or close to it).

Privatising for the sake of it, and not in the right manner, will simply entrench those parties with the necessary political connections. Ideally, what should be happening at the country’s ports is that different terminals should be concessioned to different players, to create competition within the ports themselves.

Assuming the Durban Pier 2 concession process to International Container Terminal Services is completed, the smaller Pier 1 should also be opened to private investment, with the concessionaire being required to invest in making it competitive with Pier 2, on a 30-50 year contract. The guiding thinking and attitude regarding moves to bring in private sector skills and investment across the ports and railway networks should be creating competition so that port users have a choice.

Exports

Writing in Business Day, Lawrence Edwards, Matthew Stern, and Jing Chien find: “Since 2000 export growth has slowed and by 2022 export volumes were only 5.7% higher than in 2008.” Additionally, “SA’s export performance has been meaningfully weaker than that of other middle-income countries. In strong contrast to SA, most of these countries’ exports increased as a percentage of GDP in 2000-22.”

SA exports can’t improve or increase without reliable basic trade infrastructure. While Transnet exists in its current form, our prospects for growth and a higher average quality of life will be terminally hobbled.

The current iteration of the Government of National Unity has a possibly very limited timeframe within which to implement and boost the kinds of reforms the country needs to break from the 0.8% GDP growth rate it has averaged since 2012. The low-hanging fruit of trade infrastructure and policy reform is ripe for picking.