[Opinion] South Africa’s trade growth opportunity

Getting this major economic lever right would do much to lift growth rates, improve economic activity, encourage investment, and from the domestic side shore up the value of the Rand in a time of more global volatility and a high likelihood that interest rates will remain higher than initially hoped.

Regarding volumes of goods and materials moved on rail, Transnet showed small signs of improvement in 2024. The company’s latest interim results, released in December 2024, indicated rail volumes increased by 3.2%, compared with the previous year.

Consequently, revenue increased R41.5 billion year-on-year, up by 6%. On the ports front, operations remain far below the required standard.

In 2024, container volumes received and handled by Transnet’s port terminals came in at 2.1 million 20-foot equivalent units (TEUs): a drop of 0.6%. Still, as opposed to the massive queues of ships seen at the country’s ports in December 2023, a year later some ports had improved. Investments in more cranes and in container brackets for trucks helped stabilise matters somewhat.

However, this continued underperformance in both rail and ports acts as a binding constraint on the economy, limiting the movement of goods within the country and externally. After energy, it is arguably the biggest handbrake on growth.

In the context of declining global commodity prices, the South African economy needs to make up for lower prices through increased volumes of exports, which is not possible within the current set of logistical circumstances.

Crucial

Given the control extended by Transnet over logistics in the country (an effective monopoly in rail and ports), getting it right is crucial for the country’s future growth prospects. Its crushing debt burden continues to make it even more difficult for the company to invest to the required levels in infrastructure maintenance and upgrades.

The interim financials mentioned above detailed that the company spent an estimated R13.1 billion in capital repayments and interest paid over the first six months of its latest financial year. As a consequence of its ongoing debt concerns, Transnet has not spent what it needs to on capital investment. This in turn limits the amount of revenue it can generate (coupled with the fact that so many businesses and exporters have shifted the movement of their products and raw materials from rail to road).

From the macro policy side, the best-case scenario for private-sector operations beginning on Transnet rail corridors is April 2025. The Network Statement published by the Transnet Infrastructure Rail Manager in December 2024 sets out terms and details for third-party access to the country’s rail network.

Whether the pricing, tariff structure, and terms are appealing enough to private operators and investors remains to be seen. Should the process fizzle out, the risk is that future plans along similar lines will be dismissed out of hand.

Critically, Transnet, as a monopoly, has no meaningful economic incentive to set competitive open-access tariffs, and it will require a strong hand from the Department of Transport and Minister Barbara Creecy to fulfil its regulatory role, if government is serious about private sector competition in this space.

Critical reforms

Beyond open-access freight rail, other critical reforms are essential to ensure that market-based competition produces a price-competitive port and rail sector in South Africa. Concessioning to one provider would only bring a private firm into an existing monopoly structure. Multiple concessions to different private players on different freight lines, and ports, or even port berths would create the necessary competition and give firms options.

More attractive alternatives to South Africa’s ports are emerging in neighbouring countries: Namibia and Mozambique chief amongst them (the political and security concerns in the latter notwithstanding). Namibia has concessioned the Walvis Bay port on a 25-year lease to Terminal Investment Limited, which has redesigned port operations across Southern Africa already.

South Africa ought to be one of the major driving forces behind the implementation of the African Continental Free Trade Area (AfCFTA): lowering trade barriers of various types across the continent. The ‘promise’ of AfCFTA and ‘good will’ and ‘high hopes’ alone will not be enough to see real progress in improving the flow of goods, products, services, and skills across the continent. From 2022 to 2023 the share of intra-African trade as part of total trade dropped from 14.7% to 14.4%. The 14.7% itself is nowhere near good enough. Freer trade and economic progress are by no means guaranteed.

Some countries are entering a period of protectionism and adopting a ‘beggar-thy-neighbour’ footing; those countries that facilitate easier trade will benefit from a continuing need for investment, manufacturing, and value-adding locales. Should South Africa focus on getting the basics right, the benefits will follow.

Introducing real competition on competitive terms in ports and rail will no doubt offend large vested interests. In politics, and in some cases in business, they have the time and resources to deal with the extra costs and delays that are the consequence of broken railway networks and inefficient ports.

However, if the true goal is pro-growth reform and higher economic growth rates (instead of mere lip service) the necessary political, business, and civil society interests should concentrate towards ending the Transnet stranglehold on South Africa’s growth potential.

Overall goal

Contained in its December 2024 Network Statement is Transnet’s estimate that R65-billion needs to be spent over the next five years to maintain its rail infrastructure, with the overall goal of reaching 250 million tonnes in goods moved. The long and the short of it is that Transnet does not have this capital – and is unlikely to ‘find’ it any time soon.

The only answer is the private sector. Whether the terms of investment prove to be truly attractive enough for the private sector will probably be seen shortly.

The GNU possibly has very little time to effect the kinds of reforms that the country needs – possibly only until the next local government elections (in 2026). Logistics reforms are arguably the ripest, and easiest to pluck, of all the low-hanging fruit on offer.

[Image: https://www.flickr.com/photos/davidgubler/32331765614]

Article originally appeared here