Restructuring South Africa:  port efficiencies are key to the national dialogue

The way forward for economic growth in South Africa is seemingly simple. There needs to be more participation from the private sector in driving economic growth.

While this seems simple in principle, the practicalities of it are a lot more complicated. Since 1994, economic growth has largely been driven by State Owned Entities such as Eskom and Transnet. However, these companies have fall significantly short of the standard required to achieve this growth, and urgent interventions are needed to address infrastructure challenges such as aging power stations and the state of Transnet’s rail line.

Coupled with this is the fact that these companies have traditionally been vehemently against privatisation with Eskom CEO André de Ruyter all but labelling it a fools errand.

President Cyril Ramaphosa feels differently and has seemingly had hard discussions with SOE’s forcing them to toe the line. One of the key interventions Government has planned is increasing the efficiencies of our ports. While no revised date has been provided (this project was due to be completed in Q1 of 2021), it will go a long way in restructuring South Africa.

Coming to the party
It seems as if Transnet is coming to the party. The SOE recently announced that it in the process of creating a special purpose vehicle to run container terminals.

The article points out that Transnet intends to create a special purpose vehicle together with its employees and an international terminal operator with the aim of assuming control of operations at its Durban Container Terminal Pier 2 and Ngqura Container Terminal in Gqeberha over 25 years.

The process to appoint the international terminal operator has already begun, with Transnet last week publishing a request for qualification for potential bidders.

The article points out that this follows completion of the open-ended request for information process for private investment to expand its facilities at the two ports. Transnet says the request received an “extremely positive response” from the market.

The final bid evaluation process is due to be concluded by June 2022, followed by completion of the upgrades to the ports by 2023.

“The special purpose vehicle will provide required investment in the terminal to improve efficiencies, resolve operational challenges and modernise [the terminals],” Transnet said.

A rose by any other name
Public Enterprises Minister, Pravin Gordhan, recently assured Parliament’s Public Enterprises Portfolio Committee – during a presentation by Transnet and the DPE – that the involvement of private partners for Transnet does not mean the entity is being privatised.

“Transnet doesn’t have the capital that it requires to attend to every single need that the economy has … [Transnet] does require investment in its equipment and infrastructure and so it needs to find alternate ways of generating revenue which would assist with operational costs but also with investment, maintenance of equipment,” he said.

Improving efficiencies
The Business Day article points out that the special purpose vehicle, subject to the approval of Transnet National Ports Authority, will operate under a licensing arrangement with Transnet Port Terminals, according to the request for qualification. Future expansion of the Durban and Ngqura container port terminals will be financed and funded by the special purpose vehicle.

Transnet National Ports Authority will be paid rental and fees for the right of use of the container port terminals.

“[The special purpose vehicle] will generate revenues from clients/shipping lines calling at [Ngqura and Durban container port terminals], and existing terminal services agreements held by Transnet Port Terminals with its clients will be transferred to [the special purpose vehicle] in line with the terms and conditions in those agreements,” the request for qualification reads.

Both Durban Container Terminal Pier 2 and the Ngqura Container Terminal are operating below their capacities of 2.4-million twenty-foot equivalent units (TEUs) and 1.3-million TEUs respectively.

Where does this leave the private sector?
We know two important facts:

• Transnet is building a vehicle to improve port efficiencies; and
• Gordhan is adamant that Transnet will not be privatised and that private companies will have to lease these vehicles from Transnet. This will supposedly contribute towards the building or more of these vehicles as well as Transnet turnaround plan.

But we also know that Ramaphosa is under pressure to resolve the country’s unemployment crisis. As reported in a previous editorial, the changing dynamics of our population growth between now and 2050 means that South Africa will have achieve economic growth of between 4% and 5% every years between now and 2050 to reduce the unemployment crisis to manageable levels.

The growth projections mentioned in the paragraph above are by Alexander Forbes. If we assume that these are correct, and that the International Monetary Fund predicts that South Africa will be lucky to achieve GDP growth of 3% this year, we see that Ramaphosa is caught between a rock and a hard place.

We cannot have Government ministers lamenting privatisation when it is clear that we need to fast track growth. We need to have four or five of these vehicles at every port by the end of the year if we want to make any progress in improving port efficiencies. This can only be achieved if Government works with private sector companies to manufacture and produce these vehicles.

Both the Durban Port and the Ngqura Container Terminal are among the busiest ports in South Africa. They have an important role to play in the South African restructuring story. The time for stubbornness is over. If Ramaphosa is serious about the expanding role of the private sector, Ministers either need to agree or move out of the way.