[News] Brighter days ahead?

The South African ports are consistently ranked at or near the very bottom of international indices. Their atrocious performance inhibits the exporting capacities of businesses across the economy, especially in the mining and agriculture sectors. Had the ports been able to handle higher volumes, meanwhile, the national fiscus would also have experienced even more benefit from higher commodity exports.

Perhaps, after years of resisting the types of reform necessary to improve the performance of the ports, the government has finally reached the inflection point. Privatisation is by no means a panacea for the problems at the ports and railways. But bringing in at least some element of private sector operational capacities and skills could be the jolt to the system needed to ultimately achieve better results for the ports themselves and the economy as a whole.

First announced in July, International Container Terminal Services (ICTSI) was selected as the preferred bidder for a joint venture to develop and upgrade the Port of Durban’s Container Terminal Pier 2. This particular terminal handles over 70% of all throughput at the port, which needs all the help it can get – the World Bank’s latest Container Port Performance Index has it ranked 341st of 348 total facilities.

ICTSI is based in the Philippines and operates 32 terminals in 19 countries across six continents. In Africa it operates in Nigeria, Madagascar, and the Democratic Republic of Congo. The company will enter a partnership with Transnet at Pier 2 of the port, with Transnet having ownership of 50% plus one share, meaning that ultimately Transnet will remain in control. This brings the positive of ensuring local government and business are involved, but with the downside risk of continued delays of necessary labour moves, appointments, and investment decisions. It also remains to be seen whether labour unions buy into the proposed changes that this new agreement will bring.

The agreement with ICTSI will run for a period of 25 years, with an option to extend this to 30 years. Given such a long time span it is unlikely that improvements will happen right away, but the foundations for improved port performance should be focused on immediately. The very agreement itself is an admission on the part of Transnet – but most importantly on the part of national government at large – that it cannot persist with the model and idea of maintaining state-owned and protected monopolies in various areas, and that reality demands reform. This reform will not be quick, and the process will no doubt face a myriad hiccups and challenges, but at the very least the ball is now rolling. According to reports, similar processes and agreements are being explored at the Ngqura container terminal as well as at the Richards Bay port.

Jacob van Rensburg, head of research and development at the South African Association of Freight Forwarders (SAAFF), has pointed out that in 2017 gross container handling per hour peaked at just above 25 at the Durban container terminal. By 2022, this had decreased to 17.4. Similarly, in 2015 the ship working hours (as defined by the number of containers moved by cranes working on the vessel) peaked at the 59.28 per hour mark, which by 2022 had decreased to 41.82. Also in 2015, the terminal recorded its best turnaround time (total time spent by a vessel in port) of 72.28 hours. By 2022, its score on this metric had more than doubled to 167.4 hours.

Privatisation in and of itself will not result in more effective state-owned entities, nor better outcomes for the wider economy. This is especially true if it is done in a way that only benefits those with the necessary political connections, which is almost akin to how the former Soviet Union went about its “privatisation” process in the early 1990s.

So, while the news of reform at Durban Terminal Pier 2 should be celebrated, the end goal of real private sector competition in the running of ports and rail remains a long way off. Given its control through an entity such as Transnet, the governing party could well continue to find ways to extend its influence to the extent that it alone benefits. This would be a much deeper and longer process to turn around, but perhaps there is now real light at the end of the tunnel.

Originally published here.