Transnet plans are likely to run out of steam

South Africa’s perennially underperforming railways and ports are acting as a constant barrier inhibiting the country’s growth potential. This can have dire consequences, warns CHRIS HATTINGH.

The unreliability of rail also forces businesses to use road freight, with the accompanying higher fuel costs and security risks. At the end of January this year, Transnet Freight Rail (TFR) issued a request for qualification (RFQ), with the intended ‘product’ on offer being the operation of its rail container corridor between Johannesburg and Durban. This corridor alone accounts for about 60% of the containers that pass through the country’s ports. Investors are encouraged to bid for a 20-year lease.

There is a significant caveat to this apparent reform, though. While the successful bid(ders) will be responsible for the maintenance of the corridor, as well as paying the salaries of over 3 000 TFR employees and security needed to combat cable theft, at the completion of the 20-year period, investors will need to hand the corridor (including, one would presume, all the capital invested) back to Transnet. 

Such onerous requirements are likely to ensure a less-than-ideal bidding outcome, as the risks associated with such massive capital outlays are clear. These risks would also be taken on without having the ownership rights and freedom from possible political and bureaucratic interference. Within a global context of more restrictive investment, one can ill-afford to add on any other barriers or disincentives that will increase the risk premium and effectively encourage investors to seek opportunities elsewhere.

Hopefully, this initiative by TFR at the very least points to a measure of positive policy change. However, an additional risk with such onerous terms and conditions is that TFR will need to ‘sweeten the deal’, as it were. This means that only those individuals and companies with the necessary political connections will ultimately prevail, as opposed to the most competitive or cost-effective bidder. To mitigate at least some of this risk, the entire process – from first initial bid to conclusion – should be fully transparent.

What lies at the core of such half-hearted reform is the fact that the current configuration of the state extends significant control through most, if not all, aspects of the economy and society. To strip away such control would require letting go of political and economic influence, as well as extensive patronage networks. The incentives are not there for the kind of change that lowers state control and creates more space for real private sector investment, competition, and improved accountability and service delivery.

Should TFR, and the present government more widely, be truly serious about adopting reforms that will put the country on a better path, there would need to be a sea change in the perspective with which the role of the state is viewed. The dominant attitude at present is more extractive than collaborative, more antagonistic than welcoming, more controlling than enabling. For anything near five to 7% GDP growth per annum to be achieved over the next few years – a rate necessary to deal effectively with the unemployment crisis – less, rather than more, control is required.

South African GDP data indicated a contraction of 1.3% in the fourth quarter of 2022. This was the result mainly of higher and more consistent stages of load shedding, a sustained strike by Transnet employees, and the unreliability of the country’s rail networks and ports. With the country not escaping even one day of load shedding so far in 2023, the likelihood of another contraction in the first quarter of this year is exceedingly high. This will mean that the country finds itself in a recession.

Within this wider economic context, the takeover of some measure of rail operations by private sector investors would be extremely useful in boosting at least a modicum of growth. Should this move not materialise, the options open to exporters, importers, manufacturers, and others in agriculture and mining may force them to find alternative paths and agreements in neighbouring countries, to ensure that their goods can still move through the region and out into the global trade routes.

European consumer demand for our commodities will likely remain high. However, even they will begin to look elsewhere to supply their needs should South Africa continue to muddle along with inadequate trade infrastructure and a generally anti-business operating environment.