Towards the end of 2023, President Cyril Ramaphosa made a profound statement of intent by announcing that he would dissolve the public enterprises ministry. The running of State-Owned Enterprises would fall within the President’s ambit, except for Eskom, whose oversight falls to the Electricity and Energy Minister, Kgosientso Ramokgopa.
President Cyril Ramaphosa’s decision to dissolve the public enterprises ministry is not just a response to the growing calls from the Economic Freedom Fighters. It’s a proactive step that shows his personal commitment to addressing national economic issues. This move, which will see him taking direct charge of State-Owned Enterprises, is a clear signal of his determination to steer the economy in the right direction.
The Transnet debacle will be one of the first mountains that the seventh administration will want to reduce to a foothill. With new funding on the horizon, will there be light at the end of the tunnel or has too much damage been done?
Important funding
The Moneyweb article points out that Transnet has secured an R18.5 billion ($1 billion) loan from the African Development Bank as part of a larger plan to fix SA’s rail and ports networks, which have hobbled economic growth in recent years.
In a joint statement on Thursday, the African Development Bank and Transnet said the 25-year loan would facilitate the first phase of Transnet’s R152.8 billion five-year capital investment plan “to improve its existing capacity ahead of expansion for the priority segments throughout the transport value chain”.
“Transnet has faced operational challenges mainly in the critical rail and port businesses resulting from underinvestment in infrastructure and equipment, theft and vandalism, and external shocks such as floods and the effects of the Covid-19 pandemic,” said the statement.
The article adds that Transnet’s recovery plan, launched in October 2023, aims to rehabilitate infrastructure and improve operational performance on rail and port networks.
The loan will allow Transnet to execute its recovery plan as part of a freight logistics roadmap released in 2023.
Existing relationship
Transnet has been a client of the African Development Bank since 2010.
“Our partnership will enable Transnet to execute a comprehensive Recovery Plan (RP), addressing operational inefficiencies, particularly in rail and port sectors,” said Solomon Quaynor, the bank’s vice president for private sector, infrastructure and industrialisation.
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“It is aligned with South Africa’s strategic Roadmap for [the] Freight Logistics System, and overseen by the National Logistics Crisis Committee, chaired at the presidency level. This initiative signifies our commitment to enhancing national logistics capabilities and driving sustainable economic growth.”
The Moneyweb article point out that the African Development Bank loan will contribute to Transnet’s capital investment plan to stabilise and improve the rail network and to contribute to the broader SA economy, said Michelle Phillips, group CEO at Transnet.
The bank is also considering grants of R13.6 million and R18.5 million to improve energy efficiency and for technical assistance to help accelerate railway reforms and address structural and regulatory inefficiencies at Transnet.
The size of the problem
The article adds that Jan Havenga, professor of logistics at Stellenbosch University, reckons it will cost R80 billion and take ten years to fix Transnet’s core rail network of 5 000 km.
“I applaud what the new management at Transnet is doing, but the problem is much bigger than it is for them. This R18.5 billion load is a drop in the ocean. I think it is a R200 billion problem that we have to confront if we are going to fix the ports and rail systems and get the economy moving as it should.”
Havenga estimates that fixing the rail network will add 0.5-1% to GDP annually. This does not count the economic benefits of a properly functioning port system.
“Transnet’s new management has done a great deal to fix the more obvious short-term problems that previous management neglected to do, such as prioritising investments and essential maintenance. Now we get to medium and long-term, and that’s where it gets more tricky.
“There’s huge debt and massive under-investment in infrastructure, and this is beyond the capacity of management alone to solve these issues. This is where government will have to step in.”
The article adds that independent infrastructure managers are being appointed to ensure fair competition in allocating routes and setting tariffs as Transnet confronts competition (outside of road transport) for the first time in its history.
Private sector advocates have called for Transnet’s operating service providers to be split from the larger group and made to compete on an equal footing with the private sector. This would leave port and rail authorities – similar to what Sanral does for the management and maintenance of roads – to oversee the proper functioning of the rail and port networks.
The article points out that freight rail volumes have been in a long-term downtrend and are now at levels last seen immediately after World War II. The rail network has had to contend with a lack of investment in infrastructure, poor maintenance, and rampant vandalism. There are signs of recovery under newly appointed Transnet Freight Rail CEO Russell Baatjies, with freight volumes now beginning to improve.
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Transnet has suffered a 35% decline in rail freight over the last decade, while road freight nearly doubled over the same period.
Another problem Transnet will have to confront is its massive debt of about R150 billion, almost half of which is due to state capture. The assumption of more debt is “like giving booze to an alcoholic”, says one analyst who asked not to be named.
The article adds that industry analysts say the government will have to assume much of this debt on its own balance sheet to avoid lumping the interest costs on private sector operators as it embarks on a process of public-private partnership (PPP) participation.
Government has started the process of concessioning port facilities through PPPs, and the introduction of third-party operators on the Transnet rail network will go some way to fixing the state-owned logistics operator. However, private operators say the tariffs Transnet intends to charge are unsustainable, as they are expected to pay the costs for the prior decades of mismanagement and state capture.
The C word
President Ramaphosa’s efforts to address economic growth are commendable. His commitment to increasing private sector involvement in driving the economy and the composition of the new Transnet board, which includes significant representation from mining houses, are steps in the right direction. These actions are a clear response to the long-standing calls for oversight from those directly impacted by Transnet’s inefficiencies.
However, as any good turnaround professional knows, you can have a thriving business from an operational point of view. Yet, the company will still face financial distress because of financial mismanagement. President Ramaphosa is now in charge of a significant war chest with rumours of financial irregularities circling over his head (Phala Phala). I don’t want to be like every other South African and use the C word (corruption) as an automatic response when money is handed over to the Presidency. But until the public is proven wrong, if the shoe fits…
We live in interesting times.
